AssetBuilder RSS feedhttps://assetbuilder.com/rss.xmlen-usLatest 20 articles from AssetBuilder's top authors.Copyright 2007-2019 AssetBuilder. All rights reserved.Why a Trip Around the Yucat&#225;n is a Great Vacation Bargain&lt;br /&gt; &lt;br /&gt; One of the pyramids at Becan: Photo taken by Andrew Hallam&lt;br /&gt;I walked through a tunnel of massive stones, which soon gave way to a tropical jungle trail. I couldn’t see far ahead; the dense foliage limited visibility to about 15 or 20 feet. Then it opened up. It was like entering a scene from Tomb Raider or Indiana Jones. I climbed the 2000 year-old pyramid that emerged in the clearing, breathing heavily as I neared its sacred summit. I looked around as I reached the structure’s crest. Breaking through the high tropical trees, I saw tips of other pyramids obscured by the jungle. I heard the wind. I heard the haunting screams of howler monkeys. I heard the jungle cicadas buzz. It was a perfect place to sit and wonder. If I went back in time, what else would I see? One thing, above all, helped me to imagine it: nobody else was there. I didn’t have to battle other camera-toting tourists. I didn’t have to weave through crowds of merchandise sellers. I was alone with the jungle’s sounds. &lt;br /&gt; Yucat&#225;n Peninsula&lt;br /&gt; &lt;br /&gt;In contrast, thousands of people flock to the Mayan ruins at Tulum and Chich&#233;n Itz&#225;. Others storm the beaches at Cancun. Thirty years ago, these were secret gems. But they’re stuffed with tourists now. And prices are often high. If you’re looking for a low-cost warm winter escape, let me suggest something different. My wife and I recently spent 10 months driving around Mexico in a camper van. The Yucat&#225;n Peninsula is the country’s most expensive region. But it’s still cheap, by U.S. standards, once you’re away from the tourist towns. I recommend flying to Cancun, renting a car and then driving around the Yucat&#225;n Peninsula for a week. The roads are smooth, the people are friendly, and you’ll find several gems. Mayan ruins, for example, are about as common as Starbucks in Seattle.Don’t get me wrong. The famous ruins at Tulum are spectacular. And Chich&#233;n Itz&#225; is one of the Seven Wonders of the World. But they’re packed with tourists like flies around a single jar of jam. And their prices aren’t low. Scooter rentals in Tulum, for example, cost about $30 a day. By Mexico’s standards, that’s stratospheric.We paid $15 USD each to walk the grounds at Chich&#233;n Itz&#225;. In contrast, the quiet ruins at Becan cost just three dollars. &lt;br /&gt; &lt;br /&gt; Yucat&#225;n Peninsula cenote. Photo courtesy of Andrew Hallam&lt;br /&gt;The Yucat&#225;n is also known for its cenotes. These are fresh water sinkholes. Some are above ground, while others are subterranean. These sinkholes attract brave scuba divers who explore their hidden channels. Near Cancun and Tulum, tourists pay high prices to swim in the nearby holes. Some cost as much as $20. But drive a few miles from the hot tourist zones. You’ll find much cheaper holes with far fewer tourists. In fact, the Yucat&#225;n Peninsula is a better bargain now than it has been in years. Over the past five years, the U.S. dollar has gained 38 percent on the Mexican currency. Over the past 10 years, it has more than doubled against the peso. This has made towns like Bacalar more affordable than ever. &lt;br /&gt; The U.S. Dollar Is Soaring Above The Peso&lt;br /&gt; &lt;br /&gt; Source: XE Currency converter&lt;br /&gt;Bacalar is one of six Pueblo M&#225;gico [magical town] sites on the Yucat&#225;n Peninsula. The other Pueblo M&#225;gicos include Tulum, Isla Mujeres, Valladolid, Izamal, Palizada. They are popular among European, South American and Mexican tourists. In 2001, the Mexican government began pouring money into its Pueblo M&#225;gico program to promote tourism. The towns were selected based on their natural beauty, cultural richness, historical relevance, cuisine, and great hospitality.&lt;br /&gt; &lt;br /&gt; Left: Pueblo M&#225;gicosite, Izamal: photo courtesy of Andrew Hallam, Right: Bacalar, photo courtesy of Andrew Hallam&lt;br /&gt;Bacalar is known as the lake of seven colors. Its freshwater lagoon is great for swimming and kayaking. But like most of the Yucat&#225;n’s sites, few Americans know it. That’s a pity. The Yucat&#225;n Peninsula is the safest region in Mexico. And if you drive around the peninsula, you might build far more memories than you would if you stayed at a fancy beach resort. Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacherand Millionaire Expat: How To Build Wealth Living Overseashttps://assetbuilder.com/knowledge-center/articles/why-a-trip-around-the-yucatán-is-a-great-vacation-bargainThu, 21 Feb 2019 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/why-a-trip-around-the-yucatán-is-a-great-vacation-bargain2018: Keep on Keepin’ on&lt;br /&gt;&lt;br /&gt;Bob Dylan&lt;br /&gt;&lt;br /&gt;In 1975 Bob Dylan released the acclaimed “Tangled Up in Blue” —with temperate lyrics hailed by music critics and literary scholars alike. Dylan, known for his poetic style and profound use of imagery, lassoed the American imagination for decades with a song he wrote, and rewrote, as time went on. However, one little phrase stayed in all versions:&lt;br /&gt;&lt;br /&gt; The only thing I knew how to do &lt;br /&gt; Was to keep on keepin&#39; on &lt;br /&gt; Like a bird that flew &lt;br /&gt; Tangled up in blue&lt;br /&gt;“Keep on keepin’ on” —a self-explanatory colloquialism reminding us through the generations to drudge on despite adversity and setbacks. It is a sentiment many investors forget, and it is they who aptly end up tangled up in blue.&lt;br /&gt;The Return of Volatility “Stocks Haven’t Seen This Much Volatility Since the Financial Crisis.” This was a headline from a CNBC article in April 2018, reflecting the panicky tone of some investors after a relatively stable 2017 year. But other news stories punctuating early 2018 included reports on global economic growth, corporate earnings, record low unemployment in the US, the implementation of Brexit, US trade wars with China and other countries, and a flattening US Treasury yield curve. Global equity markets delivered positive returns through September, followed by a decline in the fourth quarter, resulting in a −4.4% return for the S&amp;P 500 and −9.4% for the MSCI All Country World Index for the year.&lt;br /&gt;But the fourth quarter equity market declines of 10% were not uncommon. The S&amp;P 500 returned −13.5% in the fourth quarter while the MSCI All Country World Index returned −12.8%. It is important to note that after declines of 10% or more, equity returns over the subsequent 12 months have been positive 71% of the time in US markets and 72% of the time in other developed markets.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Source: MSCI. Past Performance is not a guarantee of future results. In US Dollars, net dividends, Index is not available for direct investment. Performance does not reflect the expenses associated with management of an actual portfolio. Declines are defined as points in time, measured monthly, when the market’s return since the prior market maximum has declined by at least 10%. Declines after December 2017 are not included, but subsequent 12-month returns can include 2018 returns. Compound returns are computed for the 12 months after each decline observed and averaged across all declines for the cutoff. US markets (1926–2018) are represented by the S&amp;P 500 and Developed ex US markets (1970–2018) are represented by the MSCI World ex USA Index&lt;br /&gt;&lt;br /&gt;The increased market volatility in the fourth quarter of 2018 underscores the importance of following an investment approach based on diversification and discipline rather than prediction and timing. There is little evidence suggesting that investors can forecast future events more accurately than all other market participants and then predict how other market participants will react to their forecasted events on a consistent basis. Investors should take comfort that market prices quickly incorporate relevant information and that the information will be reflected in expected returns.&lt;br /&gt;Diversification As US stocks have outperformed international and emerging markets stocks over the last several years, some investors might be reconsidering the benefits of investing outside the US. For the five-year period ending October 31, 2018, the S&amp;P 500 Index had an annualized return of 11.34% while the MSCI World ex USA Index returned 1.86%, and the MSCI Emerging Markets Index returned 0.78%.&lt;br /&gt;While international and emerging markets stocks may have delivered disappointing returns relative to the US over the last few years, it is important to remember that recent performance is not a reliable indicator of future returns.&lt;br /&gt;As shown below, nearly half of the investment opportunities in global equity markets lie outside the US. Non-US stocks, including developed and emerging markets, account for 48% of world market capitalization and represent thousands of companies in countries all over the world. A portfolio investing solely within the US would not be exposed to the performance of those markets.&lt;br /&gt;&lt;br /&gt;World Market Capitalization&lt;br /&gt;&lt;br /&gt;As of December 31, 2017. Data provided by Bloomberg. Market cap data is free-float adjusted and meets minimum liquidity and listing requirements. China market capitalization excludes A-shares, which are generally only available to mainland China investors. For educational purposes; should not be used as investment advice.&lt;br /&gt;&lt;br /&gt;It is easy to see the potential opportunity cost associated with failing to diversify globally by reflecting on the period in global markets from 2000–2009. During this period, often called the “lost decade” by US investors, the S&amp;P 500 Index recorded its worst ever 10-year performance with a total cumulative return of –9.1%. However, looking beyond US large cap equities, conditions were more favorable for global equity investors as most equity asset classes outside the US generated positive returns over the course of the decade. Expanding beyond this period and looking at performance for each of the 11 decades starting in 1900 and ending in 2010, the US market outperformed the world market in five decades and underperformed in the other six. This further reinforces why an investor pursuing the equity premium should consider a global allocation. By holding a globally diversified portfolio, investors are positioned to capture returns wherever they occur.&lt;br /&gt;Average Compound Returns for Stocks in a Following 12-Month Period&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Market Decline Cutoff&lt;br /&gt; &lt;br /&gt; US Large Caps&lt;br /&gt; &lt;br /&gt; Non-US Developed Markets Large Caps&lt;br /&gt; &lt;br /&gt; Emerging Markets Large Caps&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 10%&lt;br /&gt; &lt;br /&gt; 11.25%&lt;br /&gt; &lt;br /&gt; 11.18%&lt;br /&gt; &lt;br /&gt; 13.51%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 20%&lt;br /&gt; &lt;br /&gt; 11.61%&lt;br /&gt; &lt;br /&gt; 14.44%&lt;br /&gt; &lt;br /&gt; 21.52%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 30%&lt;br /&gt; &lt;br /&gt; 14.31%&lt;br /&gt; &lt;br /&gt; 19.07%&lt;br /&gt; &lt;br /&gt; 30.05%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; Past Performance is not a guarantee of future results. Declines are defined as points in time, measured monthly when the market’s return since the prior market maximum has declined by at least 10%, 20% or 30%, depending on the cutoff. Declines after December 2017 are not included, but subsequent 12-month returns can include 2018 returns. Compound returns are computerd for the 12 months after each decline observed and averaged across all declines for the cutoff. US Large CAp is the MSCI Wold ex USA Index (gross div.), from January 1970 - December 2018. Emerging Markets Large Cap is the MSCI Emerging Markets Index (gross div.), from January 1988 through December 2018. MSCI data &#169; MSCI 2019, all rights reserved.&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Emerging MarketsEmerging markets have traditionally grown at a faster rate than developed markets. In the same way that Coke can only get so much larger, the US economy can also only expand so much before reaching capacity. In contrast, emerging countries can double their economic output with relatively little cost. For instance, imagine the effort US businesses put in to “increase productivity.” This costs a significant amount of money. Contrast this with a blanket manufacturer in Bangladesh who may install a light bulb so that he can work for two additional hours every day (into the evening). This may result in a 20% increase in productivity and cost very little. So basically, these economies can make significant gains for little capital investment. Following this Bangladeshi blanket around the world is also informative. Historically, the blanket was quite likely purchased by someone in a developed market. Imagine that the blanket travels around the world to Target where you see it and decide to buy it. The boost to the overall US economy would be pretty small (for all blankets made in Bangladesh). However, imagine that blankets account for 10% of the GDP (total products produced) of the emerging market. US consumers love the blanket and Bangladesh produces 2X the number that they previously produced. Their GDP increases by 10%. Americans consume every single blanket, (our consumption is also part of GDP because Target has “produced” this blanket). Even so, this represents less than a 1% increase in our GDP. Clearly, the emerging markets benefit more than the US economy.&lt;br /&gt;Historically, US consumers have been among the largest consumers in the world. However, this is beginning to change. The two graphs below both illustrate the same point. By 2025 both India and China will have larger middle-class consumption than the US.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;China and India are Projected to be Drivers of Growing Middle Class &lt;br /&gt;Global Middle Class Consumption&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Source: The OECD Development Center, published January 2010. Note &quot;Other Asia&quot; reflects all Asian countires. excluding Japan, India, China, which are differentiated in the graph.&lt;br /&gt;&lt;br /&gt;However, the percent of revenue that EM markets get from the US is no longer as large as it has historically been. For instance, China accounts for 25% of all such revenue, the US is a distant third at 9.1%. So, many of those blankets are no longer being sold in Boston but now they’re being sold in Beijing. Which means that as the Chinese and Indian consumer class continues to grow, this imbalance will continue to favor emerging markets regardless of US consumption.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;EM Companies’ Revenue Shares by Select Country &lt;br /&gt;% of Total Revenues&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Interest RatesRemember that no one can predict with certainty that “rates will rise.” Indeed, for much of the last 5 years, most economists believed that rates would rise faster than they actually did. We, instead, implement fixed income strategies that will weather rising interest rates and still provide a “cushioning effect” during volatile times. This is primarily accomplished inside of the portfolio when the manager “shortens the duration.” Essentially, this means that the manager may be purchasing securities that they will not hold as long. This allows cash to be more readily available to take advantage when interest rates rise.&lt;br /&gt;Our abri customers saw the effect of our “duration matching” strategy which allowed them to maintain their retirement funding levels throughout the volatility of 2018. Instead of trying to time interest rate moves for these clients, we match known future expenses to treasury-inflation protected securities. This provides the necessary cash flow to meet those future expenses.&lt;br /&gt;If you’re nearing retirement or know someone who is, feel free to contact one of our advisors or explore our website to see how it works.&lt;br /&gt;Keepin’ Our Promises Last year, we promised to increase our communication and provide education to help answer your questions and keep you in the know. In 2018 we conducted 10 webinars for which over 400 of you registered. We loved hearing from you and answering questions about everything from ROTH 401k rollovers to in-depth portfolio construction. We look forward to continuing these webinars in 2019 as an effort to keep you an informed, knowledgeable investor. Plus, they are a lot of fun!&lt;br /&gt;We also released over 50 articles in our Knowledge Center tackling index investing, navigating volatility, retirement and much more. We intend these articles to enhance your understanding of today’s market and improve your savvy. The brain behind these is that of the world famous Andrew Hallam, author of the Millionaire Teacher and Millionaire Expat, who helps investors of all levels across the globe.&lt;br /&gt;We also launched our retirement service, abri, that gives retirees consistent income for the duration of retirement. Many of you on the waitlist were, at last, activated and we thank you for your patience. &lt;br /&gt;Going forward in 2019, we will continue to execute webinars, video shorts, and articles. In addition, we will be sending out a quarterly commentary from our CIO, Michael French, or your advisor. These quarterlies will provide our observation on how certain market trends affect your investment. We will also be sending out our “Core 4” philosophy, which are the investment principals that have guided us for the last decade; this is information we feel you should know as an investor.&lt;br /&gt;We would also like to thank you for your feedback. It is through your suggestions and questions that we are able to improve as a company and provide a better, more satisfactory investment experience.&lt;br /&gt;A Note from Chief Investment Officer, Michael French It has been a pleasure to meet many of you over the past couple of years whether those meetings have been in person, over the phone, or email. Your insights and questions play a large role in shaping our direction as a firm. We take great interest in understanding your passions and conversely what brings you the greatest anxiety. My role is to work with our advisors on your behalf every day to ensure that you are obtaining the best investment experience that we can offer. I also regularly meet with our partners at DFA to review portfolio objectives and look at outside funds to determine how they may be appropriate for our clients. Additionally, I am always available to discuss “held away” assets (investments outside the firm) and the impact that they may have on your overall portfolio. In order to do the best job possible, I would love to hear from you. If you have any questions please feel free to reach out to me directly, or through your advisor. I look forward to getting to know you better.&lt;br /&gt;A Note from Chief Executive Officer, Kennon Grose I would like to first announce our new Chief Operating Officer, Bruce Griffith and Chief Investment Officer, Michael French. This change in our organization is based on our desire to better serve our clients and create a better experience as you interact with AssetBuilder.&lt;br /&gt;I would also like to personally thank everyone for sticking with AssetBuilder through the long-haul. Even as markets became volatile and active managers made their quick buck, our clients kept their poise and keen outlook on investing and held steady. Our philosophy is not only tried and true but also trusted by the great investors of our time. From all of us at AssetBuilder, thank you for your continued trust and thank you for your business.&lt;br /&gt;Sources:Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. S&amp;P and Dow Jones data &#169; 2019 S&amp;P Dow Jones Indices LLC, a division of S&amp;P Global. All rights reserved. MSCI data &#169; MSCI 2019, all rights reserved. ICE BofAML index data &#169; 2019 ICE Data Indices, LLC. Bloomberg Barclays data provided by Bloomberg. Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio.&lt;br /&gt;Past performance is no guarantee of future results. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell securities. There is no guarantee an investing strategy will be successful. Diversification does not eliminate the risk of market loss.&lt;br /&gt;Investing risks include loss of principal and fluctuating value. Small cap securities are subject to greater volatility than those in other asset categories. International investing involves special risks, such as currency fluctuation and political instability. Investing in emerging markets may accentuate these risks. Sector-specific investments can also increase these risks.&lt;br /&gt;Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks, including changes in credit quality, liquidity, prepayments, and other factors. REIT risks include changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, supply and demand, and the management skill and creditworthiness of the issuer.&lt;br /&gt;https://assetbuilder.com/knowledge-center/articles/2018-keep-on-keepin-onWed, 20 Feb 2019 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/2018-keep-on-keepin-onAre Financial Health and Physical Fitness Joined At The Hip?After feeding her 2-year old daughter, 35-year old Yasmin Sewgobind walks up to the pull-up bar that hangs in her home. She does a total of 35 pull-ups: 5 sets of 7 repetitions each. She then does a short yoga routine. After that, Yasmin quickly showers, drops off her daughter at a nearby nursery and drives to work.“I bought a used car,” she says. “We’re careful with money and we track what we spend. I also try to get what I need, second hand. That includes all of the furniture in our house and many of the clothes and toys we buy for our daughter.” Yasmin even cancelled her gym membership so she could work out at home and invest more money. “I have a portfolio of index funds,” she says, “And I save about 50 percent of my salary.”&lt;br /&gt; &lt;br /&gt; Photo: Yasmin Sewgobind, courtesy of Yasmin Sewgobind&lt;br /&gt;I’ve met plenty of people like Yasmin. They’re physically and financially fit. In fact, the discipline required for one might be connected to the other. In the 1960s, researcher Walter Mischel began a series of now-famous experiments. He and his research team put treats in front of preschool children at Stanford University’s Bing Nursery School. They asked each child to sit alone, with the treat in front of them. Then the researchers left the room. But before doing so they said: “If you don’t eat this treat while I’m away, I’ll give you a second one when I come back.” Not surprisingly, most of the children couldn’t wait 15 or 20 minutes. They gobbled up their single treat. Photo: Yasmin Sewgobind, courtesy of Yasmin SewgobindYears later, Dr. Mischel conducted follow-up research. It’s best described in his book, The Marshmallow Test: Understanding Self Control and How To Master It. The children that deferred immediate gratification grew up to be healthier. Mischel wrote, “At age 27-32, those who waited longer during the Marshmallow Test in pre-school had a lower body mass index…” They also reached higher levels of education and higher income levels. On average, they were more disciplined and less impulsive as adults. I’m guessing Yasmin would have aced the marshmallow test. Thomas J. Stanley and his daughter, Sarah Stanley Fallaw found a similar connection between wealth and exercise. In 2015, they surveyed almost 12,000 millionaires across the United States. After her father’s death, Sarah Stanley published the findings in The Next Millionaire Next Door. They found that millionaires exercise more than twice as much as non-millionaires. I can hear what you might be thinking: Millionaires have more free time. That’s why they exercise more. But that might not be true.According to Stanley and Stanley Fallow’s research, the average millionaire spends more time working than the typical non-millionaire. Millionaires work an average of 38.4 hours a week. In contrast, the typical non-millionaire works 32.1 hours a week. Millionaires, however, might be more productive with their time. For example, they spend far less time on social media. The typical millionaire spends an average of 2.5 hours a week on social media sites. Meanwhile, the average American succumbs to spending 14 hours a week on Facebook and its ilk. This comparison, however, might not be fair. After all, young people spend more time on social media. That pushes the national average up. But it’s still worth thinking about. If millionaires have the discipline to spend just 2.5 hours a week on social media sites, it frees up time to exercise. Photo: Yasmin Sewgobind, courtesy of Yasmin SewgobindI asked Marcel Daane what he thought. He’s an award-winning executive coach, speaker and author of Headstrong Performance: Improve Your Mental Performance With Nutrition, Exercise and Neuroscience. He wasn’t surprised that millionaires exercise more than most. “From the hundreds of assessments we completed over the past year,” he says, “we observed that high corporate performers tend to score higher on fitness and health than the average employee.”It’s well known that people with higher incomes tend to be healthier than the poor. For starters, they can afford higher quality food and better health care. But take two people with similar incomes. Assume one of them decides to save more money for retirement. According to Washington University researchers Timothy Gubler and Lamar Pierce, that decision boosts their wealth and their health.In July 2015, they published, Healthy Wealthy and Wise: Retirement Planning Predicts Employee Health Improvements. They looked at employees from an industrial laundry company. Their average salaries were about $39,000 a year. The company started an employee wellness screen in 2010. They also introduced a 401(k) retirement plan that matched 50 percent of the employees’ contributions. &lt;br /&gt; &lt;br /&gt; Marcel Daane; Photo courtesy of Marcel Daane&lt;br /&gt;The researchers found that those who contributed to their company’s 401(k) retirement plan recorded improved health benefits two years after they began to contribute. The company’s health screen included blood work. It measured risk factors relating to diabetes, cholesterol, kidney, electrolytes, white blood cells, prostate, iron, calcium, cell balance, enzymes and thyroid. On average, those who decided not to contribute to the plan didn’t improve their health. As for those who contributed to their 401(k), Gubler and Pierce believe it made them think about their futures. That includes their health and their wealth. &lt;br /&gt; Perhaps, if we want to be healthier, we should save more money. And if we want to be wealthier we should hit the gym every day. Strangely, these factors might be more connected than initially meets the eye. Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseashttps://assetbuilder.com/knowledge-center/articles/are-financial-health-and-physical-fitness-joined-at-the-hipThu, 14 Feb 2019 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/are-financial-health-and-physical-fitness-joined-at-the-hipBitcoin Falls Further Than The Dotcom CrashTwelve months ago, I began a ten-country tour, speaking about the merits of low-cost index funds. At the end of every session, I welcomed questions. The most common question, however, had nothing to do with index funds. So many people asked, “What do you think about Bitcoin?” Many wanted to buy it, believing they could make a fortune.Bitcoin wasn’t designed to be an investment. It’s supposed to serve, instead, as a digital currency. But when people bought Bitcoin, its price increased on the open market. That prompted others to buy it, hoping to make some easy money. I grew most concerned in January 2018. My friend’s mother called from her home in California. She met someone who convinced her to invest in Bitcoin. I begged her to sell it. A few weeks later, I met a taxi driver in Dubai. “I could make so much money for my family in Bangladesh,” he said, “If I can put my savings in Bitcoin.” He dropped me off at a wealthy friend’s home. Within minutes, I was chatting to the household nanny. “I’ve never invested before,” she said, “But so many people are making money with Bitcoin. I want to buy it too.” This prompted me to write, Bitcoin Investors: Here’s Why Your Children Might Ignore You. At least once a generation, everyone from nannies to taxi drivers to schoolteachers to college professors fall in love with a can’t miss investment opportunity. Plenty buy in, based on castles in the sky. If that investment rises, they think their move was smart. But instead, they fall for the greater fool theory. In such cases, people can only make money if someone is foolish enough to pay more than they did. The greater fool theory doesn’t apply to a stock with ever-increasing earnings. If a business makes more money, demand for its shares rise. That moves the price up and it’s fully justified.But if a business promises to change the world, and business earnings don’t increase, that stock will disappoint. Such was the case with dotcom stocks in the late 1990s. They all promised to change the world and many of them did. But when their stock prices rose far faster than business earnings, they crashed back to Earth. Plenty of those businesses never made a profit, so their shares didn’t recover.Such is the case with Bitcoin. It doesn’t generate business earnings. That’s why Warren Buffett calls it a mirage. He says, &quot;The idea that it [bitcoin] has some huge intrinsic value is just a joke in my view.” In a January 10th, 2018 interview with CNBC he said, &quot;In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending.&quot;I couldn’t stop my friend’s mother from investing in Bitcoin. I couldn’t stop the nanny either. I don’t know if I stopped the taxi driver or my seminar attendees who were in search of easy money. But there’s one thing I know. Bitcoin’s price has crashed over the past 13 months. Its price peaked at $19,862 on December 18, 2017. As I write this, on January 17, 2019, it’s just $3,610. That’s a drop of 81.9 percent over 13 months. In contrast, 13 months after hitting its giddy peak on August 31, 2000, the iShares U.S. Technology Index ETF dropped 71.8 percent. &lt;br /&gt; &lt;br /&gt; Source: Morningstar.com, using iShares technology stock ETF (IYW) and CoinMarketCap&lt;br /&gt;In other words, Bitcoin’s bust was bigger than the dotcom crash. Plenty of people have learned a painful lesson. But history will repeat. Before long, another generation will fall in love with a special asset. They won’t consider business earnings or intrinsic value growth. They’ll buy it based stories and castles in the sky.One of Mark Twain’s quotes sums it up well:“History doesn&#39;t repeat itself, but it often rhymes.” Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas https://assetbuilder.com/knowledge-center/articles/bitcoin-falls-further-than-the-dotcom-crashThu, 07 Feb 2019 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/bitcoin-falls-further-than-the-dotcom-crashWhy A Sliding Stock Market Is Like A Winnable Baseball GameA few days ago, one of my readers asked a question. He’s a 31-year old who’s new to investing. “What if the stock market doesn’t make money for a decade?” he asked. “Should I sit on the sidelines, stockpiling cash, and then wait to invest when stocks are cheaper?”In a recent column, I mentioned a period from 2000-2010. U.S. stocks had jumped up and down. But they didn’t make headway. If somebody had invested $10,000 in the S&amp;P 500, starting January 2000, it would have been worth $9,016 ten years later. This reader also asked: “How can I protect my money if that happens again?” For starters, how stocks perform over the next ten years shouldn’t concern this investor. He’s just 31 years old. He has decades ahead of him before he retires. But there’s something else worth knowing. If U.S. stocks slide sideways for a decade, a consistent monthly purchase would buy an ever-increasing share of corporate earnings. Warren Buffett relates this concept to baseball. He says, don’t look at the scoreboard. Look at the play and the players on base. Imagine playing against a team that leads by two runs. Your team is up to bat. But there’s a twist to the rules. You have two runners on first base, three runners on second base and two runners on third base. So far, your team hasn’t experienced a single out. But the result on the scoreboard looks like your team is losing–if you aren’t looking at the field of play. That’s much like a young investor who fears market declines or a sideways market. When people invest, they aren’t placing bets on squiggly lines or ticker symbols. Instead, they’re buying shares of corporations. Over time, corporate earnings increase. For example, Coca Cola keeps selling more soda every decade. Johnson &amp; Johnson sells an ever-increasing number of medical instruments, baby shampoos, and almost everything in between. General Electric continues to sell more light bulbs, jet engines, microwaves and washing machines. On aggregate, the S&amp;P 500 companies do much the same. Each decade, their total business earnings rise.Now assume their share prices remain stagnant for a decade. In that case, somebody investing monthly in the S&amp;P 500 would receive an ever-increasing share of corporate earnings every year. This wouldn’t show up on the scoreboard (their portfolio’s balance). But plenty of runners would be standing on each base. This is an important concept for investors to understand. When that stagnating market rises (it might take a year, it might take ten) that portfolio will soar as multiple runs are scored. Now let’s make this real. From January 2000 until December 31, 2009, a $10,000 investment in the S&amp;P 500 would have dropped to $9,016. That’s why it’s called “the lost decade.” But assume a young investor did three simple things:&lt;br /&gt; He built a diversified low-cost portfolio of index funds.&lt;br /&gt; He added $500 a month, no matter how the market performed (putting players on bases).&lt;br /&gt; He rebalanced once a year, back to his portfolio’s original allocation.&lt;br /&gt;Assume his portfolio looked like this:&lt;br /&gt; 50% U.S. Stock Market Index&lt;br /&gt; 30% International Stock Market Index&lt;br /&gt; 20% U.S. Bond Market Index&lt;br /&gt;After the ten-year period ending December 31, 2009, he would have invested a total of $60,000. As shown in the table below, his portfolio scoreboard would have often looked ugly. But if he were patient and just kept adding money, his portfolio would have been fine. After this “lost decade” for U.S. stocks, his portfolio would have been worth $74,472.If he continued to add $500 a month for eight more years, his players on bases would have scored many runs. He would have added a total of $114,000 between January 2000 and December 31, 2018. And his portfolio would have swelled to $216,258.Investors shouldn’t try to time the market. Instead, they should add as much money as they can each month. They should also ignore their portfolio scoreboard and stock market news. By doing so, they’ll place multiple players on every base. And when their runs come in, such investors will win. Endnote: If you’re worried about retiring on the eve of a lost decade or market crash, this story might alleviate your fears.The Lost Decade Put Players On Bases&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Year&lt;br /&gt; Cumulative Total Added: $500 per month (Players Put On Base)&lt;br /&gt; Year-End Portfolio Balance (The Scoreboard)&lt;br /&gt; Year-By-Year Portfolio Returns (50% U.S. Stocks, 30% International Stocks, 20% Bonds)&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2000&lt;br /&gt; $6000&lt;br /&gt; $5,766&lt;br /&gt; -6.93%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2001&lt;br /&gt; $12,000&lt;br /&gt; $11,029&lt;br /&gt; -10.37%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2002&lt;br /&gt; $18,000&lt;br /&gt; $15,133&lt;br /&gt; -13.95%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2003&lt;br /&gt; $24,000&lt;br /&gt; $26,249&lt;br /&gt; 27.15%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2004&lt;br /&gt; $30,000&lt;br /&gt; $36,046&lt;br /&gt; 12.47%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2005&lt;br /&gt; $36,000&lt;br /&gt; $45,109&lt;br /&gt; 7.54%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2006&lt;br /&gt; $42,000&lt;br /&gt; $59,141&lt;br /&gt; 16.67%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2007&lt;br /&gt; $48,000&lt;br /&gt; $70,443&lt;br /&gt; 8.73%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2008&lt;br /&gt; $54,000&lt;br /&gt; $53,711&lt;br /&gt; -30.73%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2009&lt;br /&gt; $60,000&lt;br /&gt; $74,472&lt;br /&gt; 25.45%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2010&lt;br /&gt; $66,000&lt;br /&gt; $90,086&lt;br /&gt; 12.08%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2011&lt;br /&gt; $72,000&lt;br /&gt; $94,220&lt;br /&gt; -1.87%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2012&lt;br /&gt; $78,000&lt;br /&gt; $113,858&lt;br /&gt; 14.16%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2013&lt;br /&gt; $84,000&lt;br /&gt; $143,355&lt;br /&gt; 20.15%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2014&lt;br /&gt; $90,000&lt;br /&gt; $159,012&lt;br /&gt; 6.63%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2015&lt;br /&gt; $96,000&lt;br /&gt; $163,920&lt;br /&gt; -0.63%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2016&lt;br /&gt; $102,000&lt;br /&gt; $182,981&lt;br /&gt; 7.80%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2017&lt;br /&gt; $108,000&lt;br /&gt; $225,603&lt;br /&gt; 19.74%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2018&lt;br /&gt; $114,000&lt;br /&gt; $216,258&lt;br /&gt; -6.62%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Source: portfoliosvisualizer.com&lt;br /&gt; &lt;br /&gt; &lt;br /&gt;Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas&lt;br /&gt;https://assetbuilder.com/knowledge-center/articles/why-a-sliding-stock-market-is-like-a-winnable-baseball-gameThu, 31 Jan 2019 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/why-a-sliding-stock-market-is-like-a-winnable-baseball-gameThe Stock Market Secret That Retirees Need to KnowOne of my good friends sold her house last year in California. The 69-year old plans to fund her retirement with the proceeds. After paying off her mortgage, she had about $500,000. In April last year, we sat on the patio of her rented home overlooking Lake Chapala. She’s one of thousands of Americans living in a popular cluster of lakeside villages, just south of Guadalajara. The weather is perfect. The cost of living is low. But like so many other retirees, no matter where they live, she worries about her money. “How should I invest this?” she asked. “I need income. But I want to make sure the money lasts as long as I will.”I suggested a diversified portfolio of low-cost index funds: about 60 percent in stocks and 40 percent in bonds. It would allow her to withdraw an inflation-adjusted 4 percent per year. That means she could withdraw more money every year. No matter how the market performs, her money should last at least 30 years. Here’s how it would work. Assume she sold 4 percent of her $500,000 portfolio in 2018. That would have given her $20,000 to spend. In 2019, she would sell slightly more. The U.S. inflation rate was 2.24 percent in 2018, so my friend would sell $20,440 in 2019. That’s because $20,440 is 2.24 percent more than $20,000. Every year that she’s retired, she would increase the amount she withdraws to reflect the previous year’s inflation rate. Coupled with the annual $17,000 that she gets from Social Security, she would have plenty of money to live well in Mexico. “This sounds great,” she said. “I’ll invest the money now.” She invested it in April 2018. I caught up with her 7 months later. “I’m so glad you’ve started a good financial plan,” I said. But her response almost knocked me off my feet: “My money didn’t gain 4 percent. In fact, by the end of October, it had dropped from $500,000 to about $489,000. When I saw it drop, I decided to sell it all.”Lake Chapala is an unusual place. I would guess about 99 percent of the Americans who live there are retired. Never before, have I been among such a high number of retirees. And they ask the same questions: “Are stocks going to drop further?” “Should I sell everything now?” “What effect will Trump, or Brexit have on stocks?” “Should I put everything in gold?”In 2014, Business Insider reported a conversation between Bloomberg Radio’s Barry Ritholtz and James O&#39;Shaughnessy of O&#39;Shaughnessy Asset Management. O’Shaughnessy had recently hired a former Fidelity employee. According to the employee, Fidelity had researched to see which of its clients earned the best returns. As O’Shaughnessy recalls, “They were the accounts of people who forgot they had an account at Fidelity.&quot; I don’t know if Fidelity really did such a study. They haven’t publicized it. But as each year passes, I’m more convinced it’s true. Warren Buffett’s mentor, Benjamin Graham, said we should think of stocks as a manic-depressive man named Mr. Market. Graham said we shouldn’t let Mr. Market influence our moods. I prefer to see Mr. Market as a psychotic seducer. He whips stocks around, hoping to trick people into selling when stocks have dropped hard. Those that watch Mr. Market closely might be most susceptible to his tricks. Take the 10-year period between 2004 and 2014. U.S. and international stocks plunged several times. Note the frightening table below. &lt;br /&gt; Big Market Drops For U.S. And International Stocks &lt;br /&gt; 2004-2014&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Time Period&lt;br /&gt; U.S. Stock Performance&lt;br /&gt; &lt;br /&gt; Time Period&lt;br /&gt; International Stock Performance&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; March 5, 2004 - July 13, 2004&lt;br /&gt; -7.3%&lt;br /&gt; &lt;br /&gt; May 5, 2006 - June 23, 2006&lt;br /&gt; -12.25%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; December 12, 2007 - March 14, 2008&lt;br /&gt; -16.71%&lt;br /&gt; &lt;br /&gt; July 13, 2007 - August 17, 2007&lt;br /&gt; -11.57%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; May 16, 2008 - March 6, 2009&lt;br /&gt; -51.98% &lt;br /&gt; &lt;br /&gt; October 12, 2007 - March 21, 2008&lt;br /&gt; -16.51%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; April 23, 2010 - July 2, 2010&lt;br /&gt; -15.67%&lt;br /&gt; &lt;br /&gt; May 30, 2008 - March 13, 2009&lt;br /&gt; -53.7%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; July 22, 2011 - August 19, 2011&lt;br /&gt; -16.32%&lt;br /&gt; &lt;br /&gt; April 29, 2011 - November 25, 2011&lt;br /&gt; -26.06%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Source: Morningstar.com: U.S. stocks measured by Vanguard’s S&amp;P 500 (VFINX); International stocks measured by Vanguard’s international stock market index (VGTSX)&lt;br /&gt; &lt;br /&gt; &lt;br /&gt;Famed psychologists Daniel Kahneman and Amos Tversky studied how people feel about gains and losses. Based on their research, people dislike losses twice as much as they enjoy gains. That’s why my retired friend liquidated her portfolio in October last year. It’s why my other retired friend, Tim, keeps trying to time the market. The market plunges between 2004 and 2014 certainly look horrific. But let’s assume my friend retired in 2004 with $500,000. Her portfolio had 40 percent in a U.S. stock index, 20 percent in an international stock index and 40 percent in a U.S. bond market index. Assume she withdrew an inflation-adjusted 4 percent. As a result, she would have withdrawn more money every year. Sometimes, her portfolio would have risen. Other times, it would have fallen hard. But she would have been fine if she ignored market movements. By December 31, 2018, she would have withdrawn $362,882 from her initial $500,000. Yet, she would have more money today than when she first retired. After nearly 15 years of annual withdrawals, she would have $683,134 by December 31, 2018.That isn’t a typo. She would have started her retirement with $500,000. She would have withdrawn a total of $362,882 over 15 years. And despite the multiple market crashes over those 15 years, she would have more money today than she did when she first retired. But it would have worked only if she had kept her cool. &lt;br /&gt; The 4% Rule In Action &lt;br /&gt; Starting With $500,000 &lt;br /&gt; 2004 – 2014&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Year&lt;br /&gt; U.S. Inflation Rate&lt;br /&gt; Amount Withdrawn&lt;br /&gt; Year-End Portfolio Value&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2004&lt;br /&gt; 3.26%&lt;br /&gt; $20,651 (*see endnote) &lt;br /&gt; $533,689&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2005&lt;br /&gt; 3.42%&lt;br /&gt; $21,356&lt;br /&gt; $546,833&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2006&lt;br /&gt; 2.54%&lt;br /&gt; $21,899&lt;br /&gt; $597,331&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2007&lt;br /&gt; 4.08%&lt;br /&gt; $22,793&lt;br /&gt; $622,735&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2008&lt;br /&gt; 0.09%&lt;br /&gt; $22,814&lt;br /&gt; $465,322&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2009&lt;br /&gt; 2.72%&lt;br /&gt; $23,435&lt;br /&gt; $540,528&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2010&lt;br /&gt; 1.50%&lt;br /&gt; $23,785&lt;br /&gt; $579,608&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2011&lt;br /&gt; 2.96%&lt;br /&gt; $24,490&lt;br /&gt; $557,987&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2012&lt;br /&gt; 1.74%&lt;br /&gt; $24,916&lt;br /&gt; $598,628&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2013&lt;br /&gt; 1.50%&lt;br /&gt; $25,290&lt;br /&gt; $665,789&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2014&lt;br /&gt; 0.76%&lt;br /&gt; $25,482&lt;br /&gt; $683,100&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2015&lt;br /&gt; 0.73%&lt;br /&gt; $25,667&lt;br /&gt; $653,075&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2016&lt;br /&gt; 2.07%&lt;br /&gt; $26,200&lt;br /&gt; $672,218&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2017&lt;br /&gt; 2.11%&lt;br /&gt; $26,753&lt;br /&gt; $748,209&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2018&lt;br /&gt; 2.24%&lt;br /&gt; $27,351&lt;br /&gt; $683,134&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Total Amount Withdrawn&lt;br /&gt; Portfolio’s 2018 Year- End Value, Despite Those Withdrawals&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; $362,882&lt;br /&gt; $683,134&lt;br /&gt; &lt;br /&gt;&lt;br /&gt; Source: portfoliovisualizer.com. Portfolio based on 40% U.S. stocks (VFINX); 20% international stocks (VGTSX); 40% U.S. bonds (VBMFX).&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;*Endnote: Portfoliovisualizer calculates the first withdrawal to include the inflation rate in 2014. That’s why the initial withdrawal is $20,651 and not $20,000.Mr. Market works to drive investors crazy. Sadly, he convinces many people to sell when he forces markets down. That’s why it’s best to ignore market news. Don’t look at your portfolio statements more than once a year. Retirees should also stick to “the 4 percent rule” or use a hands-free system, like AssetBuilder’s abri. &lt;br /&gt;&lt;br /&gt;Market fluctuations shouldn’t be relevant.Further Related Reading:&lt;br /&gt; The Biggest Risks Of The 4 Percent Retirement Rule is Dying With Too Much Money&lt;br /&gt; Would Your Retirement Portfolio Last If The Market Crashed?&lt;br /&gt; When Stocks Drop, The Biggest Threat is the Person You Face In The Mirror&lt;br /&gt; When The 4% Rule Could Fail Investors [It’s all about investment fees]&lt;br /&gt;Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas&lt;br /&gt;https://assetbuilder.com/knowledge-center/articles/the-stock-market-secret-that-retirees-need-to-knowThu, 24 Jan 2019 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/the-stock-market-secret-that-retirees-need-to-knowWould This Portfolio Make A Crooked Gambler Smile?In Ancient Egypt, plenty of high-status people were entombed with tools, treasures and sometimes servants. These were meant to help them in the afterlife. But archaeologists also found weighted dice. A pharaoh, after all, might not cheat death. But he might be keen to swindle others in an afterlife game of craps.&lt;br /&gt;When rolling traditional dice, there’s an equal chance that any number between 1 and 6 could come out on top. But for years, crooked gamblers have tried to put the odds in their favor. Like the ancient Egyptians, they’ve used dice made for cheating. They’re known as weighted, crooked or gaffed dice.&lt;br /&gt;Nobody likes a cheat. But when investing, it’s well within the rules to put the odds in your favor. You’ll just need the courage to step beyond the crowd. That means investing where most are currently scared to tread: in value stocks and international shares.&lt;br /&gt;Value stocks and growth stocks are polar opposites. Value stocks, for example, are like ugly duckling shares. They’re cheap, compared to their respective business earnings. Such companies rarely produce state-of-the art products. That’s why they fly below the radar. In contrast, growth stocks often make investors starry-eyed. They include businesses with high corporate growth.&lt;br /&gt;Over the past ten years, growth stocks have soared. These include technology darlings such as Facebook, Amazon, Apple and Alphabet (Google). They’ve increased a lot in price, which is why investors love them.&lt;br /&gt;But love and future profits don’t always go hand in hand. The dice are now loaded to favor value stocks.&lt;br /&gt;Historically, when popular sectors (like growth stocks) rise year-after-year, their stocks often become expensive compared to their business earnings. In May 2018, the world’s seven largest stocks were all tech companies. They sported a median PE ratio of 43.89 times earnings. Their prices have dropped a bit since then. But they’re still at nosebleed levels. By comparison, the 21 largest holdings in Vanguard’s Russell 1000 Value Index Fund had a median PE ratio of just 21.06 times earnings.&lt;br /&gt;That’s why value stocks are now poised to beat growth. You might think value stocks are stodgy. But they perform much better than most people think. Michael O’Higgins’ book, Beating the Dowsang the praises of unsung value stocks. Jeremy Siegel did the same inThe Future For Investors. Warren Buffett also made his fortune picking (mostly) value stocks. And Benjamin Graham’s book, The Intelligent Investor, is still a classic for a reason.&lt;br /&gt;Growth stocks enjoy occasional moments in the sun. The past ten years have been a good example. But long-term, it’s value stocks that win. According to portfoliovisualizer.com, U.S. growth stocks averaged a compound annual return of 9.69 percent between 1972 and 2018. That would have turned a $10,000 investment into $774,047. But value stocks did better. Over the same time period, they averaged a compound annual return of 11.05 percent. That would have turned $10,000 into a whopping $1,377,816.&lt;br /&gt;Investing with value stocks is like playing with weighted dice. As of early 2019, the same could be said for international shares. Once again, don’t be misled by their recent poor performance. Over the past ten years, U.S. stocks have soared. By comparison, international stocks have sputtered. But over the past ten years, U.S. stock prices have risen far faster than their corporate earnings. That’s why U.S. stocks might face a weak decade ahead. &lt;br /&gt; International stocks are now the polar opposite. Over the past ten years, their corporate earnings have increased. But their stocks have lagged. From January 2008 until December 31, 2018, Vanguard’s International and Emerging Markets Indexes averaged compound annual returns of 0.27 percent and -0.42 percent respectively. Such discrepancies between stock prices and business growth, however, never go on forever. That’s why international stocks, like value stocks, are poised to do well.&lt;br /&gt;&lt;br /&gt;U.S. Stocks vs. International and Emerging Market Stocks &lt;br /&gt;January 2008 – December 31, 2018&lt;br /&gt;&lt;br /&gt;Source: portfoliovisualizer.com&lt;br /&gt;&lt;br /&gt;Smart investors shouldn’t shun U.S. shares. Instead, they should always be diversified. But if they want weighted dice, it’s best to shift from the crowd. That means investing in a portfolio of U.S. value stocks, international shares and a bond market index. Such a portfolio might not beat a heavily weighted U.S. growth stock portfolio this year or next. But over the following ten years, history says it should.&lt;br /&gt;Diversified Portfolios With Heavily Weighted Dice&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Invests in…&lt;br /&gt; &lt;br /&gt; Risk Tolerance&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Conservative&lt;br /&gt; &lt;br /&gt; Balanced&lt;br /&gt; &lt;br /&gt; Assertive&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; iShares U.S. Small Cap Value (IJS)&lt;br /&gt; &lt;br /&gt; Small U.S. Value Stocks&lt;br /&gt; &lt;br /&gt; 5%&lt;br /&gt; &lt;br /&gt; 10%&lt;br /&gt; &lt;br /&gt; 10%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; iShares U.S. Large Cap Value (IUSV)&lt;br /&gt; &lt;br /&gt; Large U.S. Value Stocks&lt;br /&gt; &lt;br /&gt; 15%&lt;br /&gt; &lt;br /&gt; 20%&lt;br /&gt; &lt;br /&gt; 30%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; iShares Edge International Value (IVLU)&lt;br /&gt; &lt;br /&gt; International Value Stocks&lt;br /&gt; &lt;br /&gt; 15%&lt;br /&gt; &lt;br /&gt; 20%&lt;br /&gt; &lt;br /&gt; 30%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; iShares Core MSCI Emerging Markets ETF (IEMG)&lt;br /&gt; &lt;br /&gt; Emerging Market Stocks&lt;br /&gt; &lt;br /&gt; 5%&lt;br /&gt; &lt;br /&gt; 10%&lt;br /&gt; &lt;br /&gt; 10%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Schwab U.S. Aggregate Bond ETF (SCHZ)&lt;br /&gt; &lt;br /&gt; U.S. Government and Corporate Bonds&lt;br /&gt; &lt;br /&gt; 60%&lt;br /&gt; &lt;br /&gt; 40%&lt;br /&gt; &lt;br /&gt; 20%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas&lt;br /&gt;https://assetbuilder.com/knowledge-center/articles/would-this-portfolio-make-a-crooked-gambler-smileThu, 17 Jan 2019 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/would-this-portfolio-make-a-crooked-gambler-smileWhy U.S. Stocks Have Dropped And What We Should ExpectSome people blame the recent stock market drop on the trade war with China. Others see different reasons. President Trump says, &quot;It&#39;s a correction that I think is caused by the Fed and interest rates.&quot; These theories sound good. But the inconvenient truth carries much more weight. You might not have heard it because it’s a lot less entertaining. Here’s the real reason U.S. stocks fell: They were expensive, compared to corporate earnings levels. No, they weren’t just expensive. They were priced in the stratosphere. Only two times in history were stocks priced this high compared to corporate earnings levels. The first time was in the late 1920s, before the 1929-1930market crash. The second time was in the late 1990s, before the so-called lost decade. A $10,000 investment in the S&amp;P 500 on January 1, 2000 would have been worth $9,016, ten years later–with all dividends reinvested.&lt;br /&gt; &lt;br /&gt; The Lost Decade For U.S. Stocks &lt;br /&gt; January 2000-December 31, 2009&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Source: portfoliovisualizer.com &lt;br /&gt;Investors shouldn’t have been surprised to see stocks fall in 2018. After all, stocks had been trading on thin ice since 2014. Let me explain. Benjamin Graham was a finance professor at Columbia University. He was also Warren Buffett’s most influential teacher. One of Graham’s stock market axioms stands the test of time. He said, “Short term, the stock market is a popularity contest. Long term, it’s a weighing machine.” Let’s focus on the short-term first. Graham said people’s fear and greed move the stock market, short-term. In other words, we move stock prices: you, me, and institutional traders. In December 2018, stocks fell heavily because more people sold than bought. When people saw stocks fall, many more sold. This brought stocks lower.That’s why it’s impossible to predict short-term market movements with any degree of consistency. They rely on two very separate things:&lt;br /&gt; Economic News (Projections of future interest rates, future corporate earnings, future tax rates, future employment rates, future consumer spending rates etc).&lt;br /&gt; Human Reactions (Projections of how individual investors will react to any or all of the above).&lt;br /&gt;Forecasting the economy is tough. But forecasting human reactions to the economy is a heck of a lot tougher. For example, imagine a series of famous economists. They unanimously claim that unemployment will hit an all-time high in six month’s time. Nobody has that kind of working crystal ball. But roll with this for a moment.You might wonder if their forecasts are going to come true. But there’s something else to consider. If the economists are right, would people sell their stocks? Many would say, &quot;Yes.&quot; And if more people sold than bought, the stock market would fall. But our reactions to such news is tough to predict. In his book, Markets Never Forget, money manager Ken Fisher listed 14 historical periods when unemployment rates were six months away from hitting all-time highs. As strange as this sounds, with only one exception (July 30, 1946), the stock market increased over the following 12 months. On average, stocks gained 31.2 percent. This doesn’t mean you should stay out of stocks until soup kitchens outnumber Starbucks coffee shops. It does mean, however, that humans reactions to economic news might be tougher to predict than the economy itself.This brings us back to Graham. He said the stock market, long-term, is a weighing machine. Such weight comes from corporate earnings. However, when stock prices rise much faster than corporate earnings, trouble usually lies ahead. Over the past ten years, stock prices have left corporate earnings in their dust. That happened in the late 1920s. It happened in the late 1990s. At some point, institutional traders say, “This is getting crazy. Nosebleed prices always come back to Earth. Let’s take some money off the table.” Stock market prices can’t perpetually rise faster than corporate earnings. At some point, Mother Reality plays her card. For proof, we can look at Robert Shiller’s CAPE ratio (cyclically-adjusted price-to-earnings ratio). It measures inflation-adjusted corporate earnings over a ten-year period and compares them to stock market prices. It’s much stricter than a typical price-to-earnings (PE) ratio which measures a single year’s earnings. If that year’s corporate earnings are artificially high or low, a traditional PE ratio could make the market look unrealistically cheap or expensive. But averaging inflation-adjusted earnings over a ten-year period is far more accurate.Note the spikes in the chart below. This chart doesn’t represent stock market growth. Instead, it measures stock market prices compared to the corporate earnings of those stocks. You can see the sky-high CAPE ratios in the late 1920s and the late 1990s. You can also see today’s nosebleed level.&lt;br /&gt; Historical CAPE Ratios For U.S. Stocks To January 1, 2019&lt;br /&gt; &lt;br /&gt; &gt;Source: Shiller CAPE ratio&lt;br /&gt;Shiller found that when the U.S. stock index trades significantly lower than its average CAPE ratio, stocks usually perform well in the decade ahead. That’s because they are cheap, relative to business earnings.But when stocks trade significantly higher than their average CAPE levels, they usually perform poorly in the ten years ahead. That’s because they’re expensive, relative to business earnings. CAPE ratios shouldn’t be used as a market-timing tool. Market timing doesn’t work. But CAPE levels give investors realistic long-term expectations. Even today, after the big year-end drop, U.S. stocks are still expensive. The decade ahead rarely bodes well when stocks are priced this high. That’s why investors should temper their expectations. Larry Swedroe and Kevin Grogan’s book, Reducing The Risk of Black Swans, references CAPE ratio data from AQR Capital Management’s Cliff Asness. They found that when CAPE ratios exceed 25 times earings, the stock market’s compound annual average return beats inflation by a paltry 0.5 percent over the following ten years. The U.S. stock market’s CAPE ratio hit 25 times earnings in 2014. At the beginning of 2019, it was 27.5.Note the blue bars below. They represent the average ten-year stock market returns following specific CAPE levels. The red bars show the best ten-year return, following respective CAPE levels. And the green bars show the historical worst case scenarios for ten-year returns after different CAPE levels.&lt;br /&gt; &lt;br /&gt; Ranges of Compound Annual Stock Market Gains After Inflation &lt;br /&gt; Based On Different CAPE Levels&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Source: Larry Swedroe and Kevin Grogan: Reducing The Risk Of Black Swans&lt;br /&gt;A seen above, when the stock market’s CAPE ratio was between 21.1 and 25.1, stocks beat inflation over the following ten years by an average annual compound return of just 0.9 percent. When CAPE ratios were between 15.7 and 17.3 (that’s near the long-term average), stocks beat inflation by an average annual compound return of 5.6 percent. And when CAPE ratios were below 9.6, stocks beat inflation by an average annual compound return of 10.3 percent. U.S. stocks fell hard in December 2018. Pundits are blaming everything from the trade war with China to the Federal Reserve’s interest rate decisions. But here’s the inconvenient truth. Long-term, the stock market is (and always will be) a corporate weighing machine. When stocks are wildly expensive, they’re destined to cool off. Unfortunately, despite their recent drop, U.S. stocks are still expensive. That doesn’t mean U.S. stocks won’t perform well in 2019 and 2020. But the decade ahead looks bleak. Instead of trying to time the market, maintain a diversified, low-cost portolio of index funds. It should include U.S. stocks. It should also include developed international stocks and emerging market stocks (both are currently cheap, based on CAPE levels). Investors should also include bonds, based on their tolerance for risk. Once a year, rebalance the portfolio.Ignore stock market news. And remember Benjamin Graham. He was right. Short-term, the stock market is a popularity contest. Long-term, however, it’s a weighing machine that almost never denies the truth–even when it hurts. Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas&lt;br /&gt;https://assetbuilder.com/knowledge-center/articles/why-us-stocks-have-dropped-and-what-we-should-expectThu, 10 Jan 2019 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/why-us-stocks-have-dropped-and-what-we-should-expectWhen The 4% Rule Could Fail InvestorsFinancial advisors and scuba diving instructors share similar responsibilities. They each guide clients into ever-changing waters. Scuba divers need to trust that their tanks are full. When retiring, clients need to know that they won’t run out of money.&lt;br /&gt;&lt;br /&gt;A fee-based Certified Financial Planner (CFP) recently created a comprehensive financial plan for one of his clients. The client, whom I’ll call Jim, sent me the plan and asked for my opinion. The report included an assessment of Jim’s risk tolerance. It said Jim should have a low-cost, diversified portfolio. It also showed how much he should save each year to fund his retirement.&lt;br /&gt;&lt;br /&gt;This all looked good. But what I read next gave me cold-water shivers. The advisor wrote:&lt;br /&gt;&lt;br /&gt;“When you retire, you can withdraw an inflation-adjusted 4 percent per year, and your money should last until you’re 95 years old.”&lt;br /&gt;&lt;br /&gt;The advisor inserted a bar graph. According to the report, if the portfolio averaged a compound annual return of 7 percent per year, and if inflation averaged 3 percent per year, and if Jim withdrew an inflation-adjusted 4 percent per year and if Jim didn’t live past his 95th birthday, then Jim wouldn’t run out of money. There were a lot of ifs in there. But something else worried me more.&lt;br /&gt;&lt;br /&gt;Jim’s financial advisor abused the 4 percent rule. For example, Jim pays total investment fees of 1.7 percent per year. If Jim withdraws 4 percent and he pays investment fees of 1.7 percent, that’s 5.7 percent coming out of his portfolio during the first year of his retirement.&lt;br /&gt;&lt;br /&gt;The 4 percent rule is part of financial-planning lore. Plenty of studies have back-tested a variety of conditions for diversified portfolios. Such research says retirees should be able to withdraw an inflation-adjusted 4 percent from their portfolios every year. When doing so, their money should last at least 30 years. Such back-tests started in 1926. That means the 4 percent rule would have survived a 30-year period that included the crash of 1929-1930. It would have survived the stock market crash of 1973-74. It would have survived runaway inflation in the 1970s. It would have survived the Bear Markets of 2001-2002 and 2008.&lt;br /&gt;&lt;br /&gt;But the 4 percent rule might have a single kryptonite: high investment fees.&lt;br /&gt;&lt;br /&gt;First, let me explain how the 4 percent rule works. Assume a 60-year old man retired in 1973. He had $100,000 invested: 60 percent in U.S. stocks and 40 percent in Intermediate U.S. government bonds (*see endnote). During his first year of retirement, he withdrew 4 percent, or $4000. He then increased each annual withdrawal to cover the rising cost of living.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Annual Inflation-Adjusted Withdrawals On A $100,000 Portfolio &lt;br /&gt;The First Ten Years Of Retirement: 1973-1983&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Year&lt;br /&gt; &lt;br /&gt; Annual Inflation&lt;br /&gt; &lt;br /&gt; Amount Withdrawn&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1973&lt;br /&gt; &lt;br /&gt; 8.71%&lt;br /&gt; &lt;br /&gt; $-4,348&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1974&lt;br /&gt; &lt;br /&gt; 12.34%&lt;br /&gt; &lt;br /&gt; $-4,885&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1975&lt;br /&gt; &lt;br /&gt; 6.94%&lt;br /&gt; &lt;br /&gt; $-5,224&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1976&lt;br /&gt; &lt;br /&gt; 4.86%&lt;br /&gt; &lt;br /&gt; $-5,478&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1977&lt;br /&gt; &lt;br /&gt; 6.70%&lt;br /&gt; &lt;br /&gt; $-5,845&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1978&lt;br /&gt; &lt;br /&gt; 9.02%&lt;br /&gt; &lt;br /&gt; $-6,372&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1979&lt;br /&gt; &lt;br /&gt; 13.29%&lt;br /&gt; &lt;br /&gt; $-7,219&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1980&lt;br /&gt; &lt;br /&gt; 12.52%&lt;br /&gt; &lt;br /&gt; $-8,122&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1981&lt;br /&gt; &lt;br /&gt; 8.92%&lt;br /&gt; &lt;br /&gt; $-8,847&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1982&lt;br /&gt; &lt;br /&gt; 3.83%&lt;br /&gt; &lt;br /&gt; $-9,186&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1983&lt;br /&gt; &lt;br /&gt; 3.79%&lt;br /&gt; &lt;br /&gt; $-9,534&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Source: portfoliovisualizer.com&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;In 1973, he would have withdrawn $4,348. This is based on 4 percent of his portfolio, plus an upward adjustment for that year’s inflation. In 1974, he would have withdrawn $4,885. That’s $537 more than the previous year. But it covered the 12.34 percent inflation rate in 1974. In 1975, the investor would have withdrawn $5,224. That covered the 6.94 percent inflation rate for 1975. By continuing to match withdrawals with inflation, the retiree ensures the same year-to-year purchasing power until he’s pushing daisies.&lt;br /&gt;&lt;br /&gt;At this point you might wonder how long the money would last. The portfolio itself would gyrate with the market. Sometimes it would rise. Other years it would fall…sometimes a lot. But if the investor paid low annual investment fees, he would still have money left, even if he lived to be 105 years old.&lt;br /&gt;&lt;br /&gt;You might not want to live until you’re 105. But if you pay 1.7 percent in annual investment fees, like my friend Jim, you might run out of money before running out of breathe. Note the yellow and the green lines on the chart below. Both lines represent $100,000 portfolios, comprising 60 percent U.S. stocks and 40 percent U.S. bonds. &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Sources: Combined asset class returns (60% U.S. stocks, 40% Intermediate Term U.S. government bonds) courtesy of portfoliovisualizer.com, minus annual fees of 0.15% versus annual fees of 1.7%, calculated annually using Excel)&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;The yellow line represents an investor who paid 0.15 percent in annual fees. They would have withdrawn $640,671 from the original $100,000 portfolio between 1973 and 2018. By January 2018, they would also have $91,669 left.&lt;br /&gt;&lt;br /&gt;Now note the green line. It represents an investor who pays total annual fees of 1.70 percent. The investor would have withdrawn $285,336… before running out of money. If he retired at 60 years of age, he would be broke at 87.&lt;br /&gt;&lt;br /&gt;According to Social Security statistics, there’s about a 50 percent chance that a 65 year-old woman will live past her 85th birthday. The typical 65 year-old man is expected to see his early 80s. That’s why we shouldn’t gamble with longevity or high investment fees. If you’re paying total investment fees of more than 1 percent per year, don’t roll the dice with the 4 percent rule. Instead, withdraw an inflation-adjusted 3 percent or less.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Unfortunately, Jim’s financial advisor thinks he can take out more. The guy is testing fate–with somebody else’s money.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Year-By-Year Inflation Levels, Withdrawals and Balances &lt;br /&gt;For 60% U.S. Stocks, 40% U.S. Bonds &lt;br /&gt;January 1973- January 2018&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Year&lt;br /&gt; &lt;br /&gt; Annual Inflation&lt;br /&gt; &lt;br /&gt; Calendar Year Inflation-Adjusted Withdrawals&lt;br /&gt; &lt;br /&gt; End of Year Balances After Paying 0.15% In Annual Fees&lt;br /&gt; &lt;br /&gt; End of Year Balances After Paying 1.70% In Annual Fees&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1973&lt;br /&gt; &lt;br /&gt; 8.71%&lt;br /&gt; &lt;br /&gt; $4,348&lt;br /&gt; &lt;br /&gt; $86,382&lt;br /&gt; &lt;br /&gt; $84,832&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1974&lt;br /&gt; &lt;br /&gt; 12.34%&lt;br /&gt; &lt;br /&gt; $4,885&lt;br /&gt; &lt;br /&gt; $68,920&lt;br /&gt; &lt;br /&gt; $66,281&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1975&lt;br /&gt; &lt;br /&gt; 6.94%&lt;br /&gt; &lt;br /&gt; $5,224&lt;br /&gt; &lt;br /&gt; $81,263&lt;br /&gt; &lt;br /&gt; $76,924&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1976&lt;br /&gt; &lt;br /&gt; 4.86%&lt;br /&gt; &lt;br /&gt; $5,478&lt;br /&gt; &lt;br /&gt; $93,038&lt;br /&gt; &lt;br /&gt; $86,585&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1977&lt;br /&gt; &lt;br /&gt; 6.70%&lt;br /&gt; &lt;br /&gt; $5,845&lt;br /&gt; &lt;br /&gt; $85,565&lt;br /&gt; &lt;br /&gt; $77,883&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1978&lt;br /&gt; &lt;br /&gt; 9.02%&lt;br /&gt; &lt;br /&gt; $6,372&lt;br /&gt; &lt;br /&gt; $83,796&lt;br /&gt; &lt;br /&gt; $74,493&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1979&lt;br /&gt; &lt;br /&gt; 13.29%&lt;br /&gt; &lt;br /&gt; $7,219&lt;br /&gt; &lt;br /&gt; $90,437&lt;br /&gt; &lt;br /&gt; $78,441&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1980&lt;br /&gt; &lt;br /&gt; 12.52%&lt;br /&gt; &lt;br /&gt; $8,122&lt;br /&gt; &lt;br /&gt; $101,216&lt;br /&gt; &lt;br /&gt; $85,497&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1981&lt;br /&gt; &lt;br /&gt; 8.92%&lt;br /&gt; &lt;br /&gt; $8,847&lt;br /&gt; &lt;br /&gt; $93,503&lt;br /&gt; &lt;br /&gt; $76,283&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1982&lt;br /&gt; &lt;br /&gt; 3.83%&lt;br /&gt; &lt;br /&gt; $9,186&lt;br /&gt; &lt;br /&gt; $107,318&lt;br /&gt; &lt;br /&gt; $84,680&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1983&lt;br /&gt; &lt;br /&gt; 3.79%&lt;br /&gt; &lt;br /&gt; $9,534&lt;br /&gt; &lt;br /&gt; $114,461&lt;br /&gt; &lt;br /&gt; $86,993&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1984&lt;br /&gt; &lt;br /&gt; 3.95%&lt;br /&gt; &lt;br /&gt; $9,911&lt;br /&gt; &lt;br /&gt; $112,757&lt;br /&gt; &lt;br /&gt; $81,970&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1985&lt;br /&gt; &lt;br /&gt; 3.80%&lt;br /&gt; &lt;br /&gt; $10,287&lt;br /&gt; &lt;br /&gt; $133,490&lt;br /&gt; &lt;br /&gt; $92,963&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1986&lt;br /&gt; &lt;br /&gt; 1.10%&lt;br /&gt; &lt;br /&gt; $10,400&lt;br /&gt; &lt;br /&gt; $142,633&lt;br /&gt; &lt;br /&gt; $94,732&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1987&lt;br /&gt; &lt;br /&gt; 4.43%&lt;br /&gt; &lt;br /&gt; $10,861&lt;br /&gt; &lt;br /&gt; $134,682&lt;br /&gt; &lt;br /&gt; $84,335&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1988&lt;br /&gt; &lt;br /&gt; 4.42%&lt;br /&gt; &lt;br /&gt; $11,341&lt;br /&gt; &lt;br /&gt; $139,960&lt;br /&gt; &lt;br /&gt; $82,094&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1989&lt;br /&gt; &lt;br /&gt; 4.65%&lt;br /&gt; &lt;br /&gt; $11,868&lt;br /&gt; &lt;br /&gt; $159,625&lt;br /&gt; &lt;br /&gt; $87,449&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1990&lt;br /&gt; &lt;br /&gt; 6.11%&lt;br /&gt; &lt;br /&gt; $12,593&lt;br /&gt; &lt;br /&gt; $147,016&lt;br /&gt; &lt;br /&gt; $73,492&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1991&lt;br /&gt; &lt;br /&gt; 3.06%&lt;br /&gt; &lt;br /&gt; $12,979&lt;br /&gt; &lt;br /&gt; $171,776&lt;br /&gt; &lt;br /&gt; $78,239&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1992&lt;br /&gt; &lt;br /&gt; 2.90%&lt;br /&gt; &lt;br /&gt; $13,355&lt;br /&gt; &lt;br /&gt; $172,902&lt;br /&gt; &lt;br /&gt; $70,267&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1993&lt;br /&gt; &lt;br /&gt; 2.75%&lt;br /&gt; &lt;br /&gt; $13,722&lt;br /&gt; &lt;br /&gt; $177,854&lt;br /&gt; &lt;br /&gt; $63,045&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1994&lt;br /&gt; &lt;br /&gt; 2.67%&lt;br /&gt; &lt;br /&gt; $14,089&lt;br /&gt; &lt;br /&gt; $160,243&lt;br /&gt; &lt;br /&gt; $46,730&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1995&lt;br /&gt; &lt;br /&gt; 2.54%&lt;br /&gt; &lt;br /&gt; $14,447&lt;br /&gt; &lt;br /&gt; $193,068&lt;br /&gt; &lt;br /&gt; $45,344&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1996&lt;br /&gt; &lt;br /&gt; 3.32%&lt;br /&gt; &lt;br /&gt; $14,927&lt;br /&gt; &lt;br /&gt; $203,607&lt;br /&gt; &lt;br /&gt; $35,695&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1997&lt;br /&gt; &lt;br /&gt; 1.70%&lt;br /&gt; &lt;br /&gt; $15,181&lt;br /&gt; &lt;br /&gt; $233,280&lt;br /&gt; &lt;br /&gt; $27,825&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1998&lt;br /&gt; &lt;br /&gt; 1.61%&lt;br /&gt; &lt;br /&gt; $15,426&lt;br /&gt; &lt;br /&gt; $259,961&lt;br /&gt; &lt;br /&gt; $16,990&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 1999&lt;br /&gt; &lt;br /&gt; 2.68%&lt;br /&gt; &lt;br /&gt; $15,840&lt;br /&gt; &lt;br /&gt; $277,214&lt;br /&gt; &lt;br /&gt; $3,049&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2000&lt;br /&gt; &lt;br /&gt; 3.39%&lt;br /&gt; &lt;br /&gt; $16,377&lt;br /&gt; &lt;br /&gt; $258,398&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2001&lt;br /&gt; &lt;br /&gt; 1.55%&lt;br /&gt; &lt;br /&gt; $16,631&lt;br /&gt; &lt;br /&gt; $232,180&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2002&lt;br /&gt; &lt;br /&gt; 2.38%&lt;br /&gt; &lt;br /&gt; $17,026&lt;br /&gt; &lt;br /&gt; $198,739&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2003&lt;br /&gt; &lt;br /&gt; 1.88%&lt;br /&gt; &lt;br /&gt; $17,346&lt;br /&gt; &lt;br /&gt; $220,366&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2004&lt;br /&gt; &lt;br /&gt; 3.26%&lt;br /&gt; &lt;br /&gt; $17,911&lt;br /&gt; &lt;br /&gt; $221,671&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2005&lt;br /&gt; &lt;br /&gt; 3.42%&lt;br /&gt; &lt;br /&gt; $18,522&lt;br /&gt; &lt;br /&gt; $212,813&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2006&lt;br /&gt; &lt;br /&gt; 2.54%&lt;br /&gt; &lt;br /&gt; $18,993&lt;br /&gt; &lt;br /&gt; $215,974&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2007&lt;br /&gt; &lt;br /&gt; 4.08%&lt;br /&gt; &lt;br /&gt; $19,768&lt;br /&gt; &lt;br /&gt; $211,627&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2008&lt;br /&gt; &lt;br /&gt; 0.09%&lt;br /&gt; &lt;br /&gt; $19,786&lt;br /&gt; &lt;br /&gt; $155,780&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2009&lt;br /&gt; &lt;br /&gt; 2.72%&lt;br /&gt; &lt;br /&gt; $20,325&lt;br /&gt; &lt;br /&gt; $160,987&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2010&lt;br /&gt; &lt;br /&gt; 1.50%&lt;br /&gt; &lt;br /&gt; $20,629&lt;br /&gt; &lt;br /&gt; $161,367&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2011&lt;br /&gt; &lt;br /&gt; 2.96%&lt;br /&gt; &lt;br /&gt; $21,240&lt;br /&gt; &lt;br /&gt; $147,130&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2012&lt;br /&gt; &lt;br /&gt; 1.74%&lt;br /&gt; &lt;br /&gt; $21,610&lt;br /&gt; &lt;br /&gt; $141,219&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2013&lt;br /&gt; &lt;br /&gt; 1.50%&lt;br /&gt; &lt;br /&gt; $21,934&lt;br /&gt; &lt;br /&gt; $145,580&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2014&lt;br /&gt; &lt;br /&gt; 0.76%&lt;br /&gt; &lt;br /&gt; $22,100&lt;br /&gt; &lt;br /&gt; $136,626&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2015&lt;br /&gt; &lt;br /&gt; 0.73%&lt;br /&gt; &lt;br /&gt; $22,261&lt;br /&gt; &lt;br /&gt; $115,225&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2016&lt;br /&gt; &lt;br /&gt; 2.07%&lt;br /&gt; &lt;br /&gt; $22,723&lt;br /&gt; &lt;br /&gt; $101,548&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; 2017&lt;br /&gt; &lt;br /&gt; 2.13%&lt;br /&gt; &lt;br /&gt; $23,202&lt;br /&gt; &lt;br /&gt; $91,669&lt;br /&gt; &lt;br /&gt; $0&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Total Withdrawn&lt;br /&gt; &lt;br /&gt; Total Withdrawn&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; $640,671&lt;br /&gt; &lt;br /&gt; $285,336&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Sources: Combined asset class returns (60% U.S. stocks, 40% Intermediate Term U.S. government bonds) courtesy of portfoliovisualizer.com, minus annual fees of 0.15% versus annual fees of 1.7%, calculated annually using Excel)&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;*Endnote:&lt;br /&gt;The 4% rule works best for portfolios with at least 60 percent in stocks. If someone retired with a globally diversified portfolio in 1973, the investor would have run out of money earlier than the above examples show. That’s because the above examples didn’t include international stocks, and U.S. stocks beat international stocks during the measured time period above. As a result, international exposure would have decreased average returns. However, international stocks might beat U.S. stocks over the next 30 years, so it pays to be diversified, especially considering the current expensiveness of the U.S. stock market, when comparing relative cyclically adjusted price-to-earnings ratios.&lt;br /&gt;&lt;br /&gt;Never assume that low-inflation rates are here forever. And don’t assume that the stock market will perform splendidly in the future. These are unknowns. As such, it’s prudent to maintain conservative levels of withdrawals. They should be lower than 4% for those who pay high investment fees.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas&lt;br /&gt;https://assetbuilder.com/knowledge-center/articles/when-the-4-rule-could-fail-investorsThu, 03 Jan 2019 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/when-the-4-rule-could-fail-investorsU.S. Stocks Have Fallen Hard: Should You Start To Buy?My father’s friend, Ken, recently sent me an email. He asked: “Is it a good time to add money to U.S. stocks now? I recently came into some cash, and the Dow has dropped a lot over the past few months. Using Warren Buffett’s logic, is it a good time to buy? Some financial people say I shouldn’t be in a hurry because it might drop further.” &lt;br /&gt;&lt;br /&gt;If U.S. stocks don’t get off the canvas before the New Year’s bell, it will be their first calendar-year loss since 2008. Between January 1 and December 24th, the Dow Jones Industrials dropped 9.97 percent. The S&amp;P 500 dropped 10.49 percent. These aren’t horrific year-to-date declines. But the rate they fell over the past 3 months has many people worried.&lt;br /&gt;&lt;br /&gt; Over the 3-month period ending December 24 , 2018, the Dow Jones Industrials dropped 17.14 percent. The S&amp;P 500 fell 19.08 percent. Plenty of people are starting to panic. Others are looking for answers or guides. So let me offer a stock market tip from an unexpected place: a recipe for chili.&lt;br /&gt;&lt;br /&gt;Ingredients:&lt;br /&gt;&lt;br /&gt; 1 lb. ground beef &lt;br /&gt; 1 small white onion, diced. &lt;br /&gt; 3 (15 oz.) cans diced tomatoes with green chiles. &lt;br /&gt; 2 (15 oz.) cans beans, drained (black beans, kidney beans, a combo, or whatever you like) &lt;br /&gt; 2 Tbsp. chili powder. &lt;br /&gt;&lt;br /&gt;This chili recipe has five ingredients. Each is proportioned for flavor. Now imagine a pesky chili-loving neighbor. He smells your cooking, so he grabs a Bavarian-sized beer mug and comes over, uninvited. You try to protect your chili, but he’s a pretty big guy. He knocks you aside, fills his mug with chili and then bolts for the door.&lt;br /&gt;&lt;br /&gt;He took some of your family’s dinner, so you’ll need to make more. A goofy song about tomatoes is playing on the radio. Your son or daughter walks past, juggling three tomatoes. With tomatoes on the brain, you open two more cans of diced tomatoes and add them to your pot. If you stop right there, you would have a horrible pot of chili. After all, it would no longer reflect the original recipe.&lt;br /&gt;&lt;br /&gt;The same could be said for Ken’s portfolio…if he added more money to his U.S. stock index. Ken has the right idea. Market drops are good for prospective buyers. But he needs to think about that chili.&lt;br /&gt;&lt;br /&gt;About ten years ago, I helped Ken build a diversified portfolio of low-cost index funds. His recipe included 40 percent in a U.S. bond market index, 35 percent in a U.S. stock index and 25 percent in an international stock index.&lt;br /&gt;&lt;br /&gt;Media headliners love the recent stock market drop. If it bleeds, it leads. Unfortunately, such headlines are creating what Daniel Kahneman and Amos Tversky called an availability heuristic. A bombardment of downward stock market news can brainwash plenty of people.&lt;br /&gt;&lt;br /&gt;For example, news networks love stories about tornadoes. They rarely, if ever, report the deaths caused by asthma. That’s why most Americans believe tornadoes kill more people than asthma. But the comparison isn’t close. Tornadoes kill about 50 Americans a year. Asthma wipes out more than 4000. The availability heuristic creates an illusion.&lt;br /&gt;&lt;br /&gt;The decline in U.S. stocks is this month’s tornado. Ken’s whirling thoughts say they’re a great deal now. But thoughts of further drops make him wonder if he should wait.&lt;br /&gt;&lt;br /&gt;Fortunately, Ken’s questions can be answered in that recipe for chili. If he adds more ingredients, his pot should reflect the original recipe. That goes the same for his portfolio. Here’s his original goal allocation:&lt;br /&gt;&lt;br /&gt;40% Bonds &lt;br /&gt; 35% U.S. stocks &lt;br /&gt; 25% International stocks&lt;br /&gt;&lt;br /&gt; Ken Has Cash…What Should He Buy?&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Ken’s Goal Allocation And Actual Allocation, January 2018&lt;br /&gt; &lt;br /&gt; Hypothetical Dollar Allocation January 2018&lt;br /&gt; &lt;br /&gt; Year-To-Date Return *&lt;br /&gt; &lt;br /&gt; Ken’s Allocation - December 24 , 2018&lt;br /&gt; &lt;br /&gt; Dollar Value December 24 , 2018&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; U.S. Stocks&lt;br /&gt; &lt;br /&gt; 35%&lt;br /&gt; &lt;br /&gt; $35,000&lt;br /&gt; &lt;br /&gt; -10.49%&lt;br /&gt; &lt;br /&gt; 34.08%&lt;br /&gt; &lt;br /&gt; $31,328&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; International stocks&lt;br /&gt; &lt;br /&gt; 25%&lt;br /&gt; &lt;br /&gt; $25,000&lt;br /&gt; &lt;br /&gt; -16.98%&lt;br /&gt; &lt;br /&gt; 22.57%&lt;br /&gt; &lt;br /&gt; $20,755&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; U.S. Bonds&lt;br /&gt; &lt;br /&gt; 40%&lt;br /&gt; &lt;br /&gt; $40,000&lt;br /&gt; &lt;br /&gt; -0.38%&lt;br /&gt; &lt;br /&gt; 43.35%&lt;br /&gt; &lt;br /&gt; $39,848&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Total Portfolio&lt;br /&gt; &lt;br /&gt; 100%&lt;br /&gt; &lt;br /&gt; $100,000&lt;br /&gt; &lt;br /&gt; -8.1%&lt;br /&gt; &lt;br /&gt; 100%&lt;br /&gt; &lt;br /&gt; $91,931&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; *Year-to-date returns to December 24 , 2018, using the following Vanguard funds: VFINX, VGTSX, VBMFX&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Ken shouldn’t let the availability heuristic grab him by the gonads. Note the table above, specifically the parts in blue. Ken’s original goal allocation calls for 35 percent U.S. stocks. Despite the recent U.S. stock market decline, Ken’s U.S. stock market allocation is 34.08 percent. That’s close to his original allocation. As such, if he has money to invest, he shouldn’t add it to his U.S. stock index.&lt;br /&gt;&lt;br /&gt;However, Ken’s international stocks have dropped below his goal allocation. And his bonds now represent a higher percentage than what he intended.&lt;br /&gt;&lt;br /&gt;That’s why, if Ken had a few thousand dollars to invest, he should buy more of the international stock market index and sell a small portion of his bond market index. Doing so would bring his portfolio closer to its original allocation.&lt;br /&gt;&lt;br /&gt;Now assume Ken’s portfolio was worth $91,931 . Assume he inherited $100,000. If he invested that money, he would need to divide it into each of his index funds. But he should do so in proportion to his goal allocation, much as somebody would if they were expanding their pot of chili.&lt;br /&gt;&lt;br /&gt;Intelligent investing really is simple. But that doesn’t make it easy. Human emotions push too many off track. And the media doesn’t help.&lt;br /&gt;&lt;br /&gt;Instead of listening to your heart or the media, invest money as soon as you have it. Ignore market forecasts. Ignore recent market movements. Turn off the television when pundits talk about stocks. Smart investors know that only three things matter: diversification, low costs, and maintaining your portfolio’s goal allocation. Everything else is a foul-tasting meal that could ruin your financial health.&lt;br /&gt;&lt;br /&gt;Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas&lt;br /&gt;https://assetbuilder.com/knowledge-center/articles/us-stocks-have-fallen-hard-should-you-start-to-buyThu, 27 Dec 2018 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/us-stocks-have-fallen-hard-should-you-start-to-buyStocks Are Going To Crash…So Are You Ready For It?Last week, I had dinner with a friend who I’ll call Tim. He retired when he was sixty. Now he’s seventy-two. While we ate, Tim gave me his personal investing story. He was a great saver, and he was always on the lookout for stock market forecasts. In 2001, Tim read a prediction that stocks were going to crash. He sold everything, avoiding the market meltdown from 2001-2002. That was like walking into a casino for the very first time and coming out a winner. He didn’t know it then, but his luck spelled trouble for the many years ahead.He moved back into stocks after the market had recovered. But those market-crash forecasts just kept coming. He traded in and out, based on “expert” predictions that were far more wrong than right. After we ate dinner, Tim showed me his portfolio. According to Schwab, it gained a compound annual return of 1.85 percent from January 2009 to November 30, 2018. Over this ten-year period, the rising price of a box of Kleenex beat his portfolio. He didn’t beat inflation. Those that stayed invested, instead, made bucket loads of money. U.S. stocks averaged a compound annual return of 14.36 percent. A globally diversified portfolio of low-cost index funds averaged a compound annual return of 8.78 percent.&lt;br /&gt; Growth of $500,000 &lt;br /&gt; January 2009 – November 30, 2018&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Portfolio Allocation&lt;br /&gt; Compound Annual Return&lt;br /&gt; End Value&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 100% U.S. Stocks&lt;br /&gt; 14.36%&lt;br /&gt; $1,892,104&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 35% U.S. Stock Index &lt;br /&gt; 25% International Stock Index &lt;br /&gt; 40% U.S. Bond Index&lt;br /&gt; 8.78%&lt;br /&gt; $1,152,343&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Source: portfoliovisualizer.com&lt;br /&gt; &lt;br /&gt; &lt;br /&gt;Tim’s portfolio is worth about $500,000. But if he had ignored all market forecasts (including the lucky one in 2001) he would have a lot more money now. Unfortunately, Tim’s tale is common. Every year, Dalbar publishes its Quantitative Analysis of Investment Behavior. The firm looks at how stocks perform, compared to how the average investor performs. For example, the S&amp;P 500 averaged a compound annual return of 10.16 percent over the 30-year period from 1987-2017. But according to Dalbar, the average investor in U.S. stocks, over this same time period, earned a compound annual return of just 3.98 percent. Some people say Dalbar’s math is wrong. But nobody denies that a huge gap exists. Each year, Morningstar publishes Mind The Gap. The mutual fund rating company shows that investors routinely underperform the market and the funds they own. Sometimes, such differences are huge. For example, during the ten-year period ending December 31, 2013, Morningstar says the typical investor in U.S. stock market funds averaged a compound annual return of 4.8 percent. That would have turned $10,000 into $15,981. Over that same time period, the typical U.S. stock (as measured by Vanguard’s Total Stock Market Index) averaged a compound annual return of 7.99 percent. That would have turned $10,000 into $21,578. We can blame investment fees for a part of investors’ poor performance. But fear and greed are far bigger culprits. Over time, the opportunity cost would continue to grow as compound interest stretched it further. For example, assume one investor turned $10,000 into $15,981 over a ten-year period. A second investor turned $10,000 into $21,578. It seems like the behavioral mistake cost the first investor $5,597. But the long-term cost would be much more than that.Assume the first investor recognized their mistake. They swear on Elvis’ grave never to speculate again. That’s good news. But, as shown in the table below, the long-term cost of their earlier mistake would continue to cost them money. &lt;br /&gt; Behavioral Mistakes Over One-Time Period Will Continue To Haunt Investors&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Initial Value After The First Ten Years&lt;br /&gt; Followed by Identical 40-Year Compound Annual Returns&lt;br /&gt; End Value After 40 Years&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; $15,981&lt;br /&gt; 8%&lt;br /&gt; $347,179&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; $21,578&lt;br /&gt; 8%&lt;br /&gt; $461,771&lt;br /&gt; &lt;br /&gt; &lt;br /&gt;Investors perform poorly for two reasons. Many jump from fund to fund. They often sell funds that aren’t performing. They then jump into funds that have recently done well. But the funds they sold often grow…after they have sold them. And the funds they buy often lag…after they have bought them. As a result, plenty of people buy high and sell low.Others listen to forecasts, much like my friend Tim. They jump out of stocks after an “expert” says they should. They jump back in, often after stocks have risen. The past 10 years have been kind to U.S. stocks. Many new investors haven’t yet seen markets fall. Many old investors have fading memories of the circus that comes with every market crash. When stocks fall, the media interviews “experts” with world-ending forecasts. Plenty will say, “Stocks will keep falling. It’s going to be worse than 1929.” Others will say, “The market crash of 2008/2009 was nothing compared to what’s coming next.” You’ll see headlines that scream, “Save Your Money By Jumping Into Gold!”Another stock market crash is coming. Over my lifetime, there will also be plenty more. But nobody knows when stocks will fall. Those that guess correctly will try to guess again. This will cost them plenty. Instead of trying to time the market, we need know what we can control. That includes our behavior and our investment costs. Maintain a globally diversified portfolio of low-cost index funds. If we’re working, we should add money every month, no matter what the markets do. Stock market crashes are especially good for young people. And they shouldn’t hurt retirees–if they can keep their cool. Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseashttps://assetbuilder.com/knowledge-center/articles/stocks-are-going-to-crashso-are-you-ready-for-itThu, 20 Dec 2018 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/stocks-are-going-to-crashso-are-you-ready-for-itShould You Be Afraid To Get Dental Work In Mexico?I ran from a dentist’s chair last week. If you’re horrified by the thought of seeing a dentist in Mexico, this might confirm your fears. But let me share what happened, while I dip into dentistry in the land of tacos and tequila. Every year, thousands of Americans flock to Mexico for low-cost dental work. I chose Dental Express, a clinic near Mexico’s Lake Chapala. Sometimes, people fly in for fillings, crowns, root canals and implants. But most of their American patients live in Mexico. That’s where dental work costs 70 to 90 percent less than it does in the United States. I’ve had my teeth cleaned in Mexico for just $10. I’ve had a cavity filled for $40. I chose my clinics based on personal recommendations and reviews that I read on the Chapala.com web-board. The clinic that I ran from has a good reputation. One customer wrote: “I had a 3-tooth bridge… Perfectly satisfied! [It cost] 14,700 pesos ($800 US). My [American] dentist wanted $4,000. On appropriate procedures, like my bridge [the dentist] uses the latest CAD/CAM equipment to design and actually make the ‘tooth/bridge’ in his office computer.”I visited this clinic seven weeks ago. The Dental Express website says they use “the latest dental technology and cutting-edge techniques.” After the dentist cleaned my teeth, he pulled his iPhone out. No, he wasn’t checking his social media feeds. Instead, he placed the phone in my mouth (my parents always said it was big) and photographed one of my molars. I wondered what Steve Jobs would have thought about this. &lt;br /&gt; &lt;br /&gt; Andrew Hallam at Dental Express: Photo courtesy of Pele Hallam-Young&lt;br /&gt;“This tooth needs a crown,” he said, while he showed me the image on his spider-web-cracked screen. “I’ll be leaving for Southeast Asia in a couple of days,” I said. “Can I get the work done when I come back in six weeks?” I scheduled my next appointment, and six weeks later, I came back to the clinic. While I lay in the chair, the dentist looked at notes he had written the month before. “So… you already have two crowns,” he said, in perfect English. This made me nervous. “I don’t have any crowns,” I said. “I thought I was coming here for a crown.” “Oh actually, you need two crowns,” he said, “and a small filling.” In fairness, he probably said the same thing during my first visit. But dentists scare me. Such trauma, perhaps, might have messed my memory. In my mind, I just needed one crown, and I didn’t need a filling. Then I began to worry. What if he was reading notes about some other guy’s teeth? In that case, he might start drilling a perfectly healthy tooth. My once-buried fears of Mexican dentists started to resurface. That’s why I needed to escape. “I don’t want any dental work done,” I whimpered, as I bolted from the chair. Thousands of Americans have much more courage. They cross the border every year in search of low-cost dental work. One popular location is Nuevo Progreso, about a 4-hour drive from San Antonio, Texas. It has more than 300 dental clinics.&lt;br /&gt; &lt;br /&gt; Source: Google Maps&lt;br /&gt;Not everyone flees from their dental chairs. I asked Janice Dyment, a 62 year-old Canadian from the province of Alberta. She recently had 7 crowns and 2 root canals done at a clinic in Ajijic, a town near Lake Chapala. “As soon as the dentist said ‘crowns’ I didn’t think I would be able to afford it,” she said. “But I had all of the work done for about $2,900.” In Canada, it would have cost at least $14,000.In 2017, CBC Calgary’s Judy Aldous interviewed Dr. Basahti. He’s Alberta’s Dental Association and College Council president. Listeners asked him questions. One listener asked about the quality of dental work in lower-cost countries such as Mexico. “I have yet to see really good work come out of other jurisdictions like that — especially Mexico,” he said. “At the end of the day, do citizens want to have high quality care that they can count on? The amount of work we&#39;ve seen where patients have atrocious infections, implants that are failing … it may be cheaper there, but…”I asked Javier Abud what he thought. He worked as a Mexican diplomat in Loredo, Texas; Anchorage, Alaska and Indianapolis, Indiana. He also represented Mexico in Holland and Malaysia– where he worked for several years. “In my opinion, the level of professionalism for dentists in Mexico isn’t as high as it is in the United States,” he says.ABC Arizona’s Alexa Liacko referenced comments from Dr. Kevin Earle of the Arizona Dental Association. He said there are good dental clinics in Mexico, but people need to do their research. That’s what Janice Dyment did before getting 7 new crowns and 2 root canals. After getting the work done, she went back to Canada and asked her Canadian dentist to inspect her Mexican dentist’s work. She recalls his surprise: “He said it was incredible. He couldn’t believe I had this work done in Mexico. He was so impressed.” I’ve also been to dentists in several lower-cost countries. Dental standards and regulations in Canada and the United States tend to be more consistent. But that doesn’t mean you can’t get world-class treatment in Mexico or Thailand. You just need to do more research, or risk stumbling into sub-standard work.Dental Departures is a good place to start. It lists the dentists&#39; certifications and each clinic&#39;s contact information. However, if you’re trusting your teeth to an out-of-country dentist, it’s best to learn more. I prefer asking long-time expats, instead of dental tourists that breeze in for work. After all, if problems arise with a specific dental clinic, word quickly spreads among the resident expatriates. That’s why I asked American retirees when I first sought a dentist in Lake Chapala, four years ago. I wanted to find the region’s best dental clinic, and I didn’t care about price. Several recommended Dr. Hector Haro. He was certified at the University of Maryland, so I decided to check him out. Fortunately, the clinic looked spectacular. They took photographs of my teeth with state-of-the art equipment. There wasn’t an iPhone in sight. It cost $40 for a cleaning and a couple of x-rays. You might wonder why I trusted my teeth to a different dentist this year. I wondered that too. I went back to Dr. Haro’s office one week after my cowardly departure at Dental Express. They cleaned and inspected my teeth. They had photos of my teeth that they took 4 years before with their wand-like dental camera. They took new photos and compared them both. Then they followed up with another state-of-the art, light-radiation x-ray. They didn’t think I needed crowns. But they wanted to be sure. After the examination, the dentist identified the same molars as the guy at Dental Express. They looked the same as they did four years ago, so she didn’t recommend extra work. “But we’ll keep an eye on those,” she said. If I need work in the future, I know where to go. I believe you can find world-class dentistry in Mexico. But the range in quality, from clinic to clinic, might be broader than you think, so you need to do your homework. Nobody wants a botched job, nor the embarrassment of running from a dentist’s chair.Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseashttps://assetbuilder.com/knowledge-center/articles/should-you-be-afraid-to-get-dental-work-in-mexicoThu, 13 Dec 2018 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/should-you-be-afraid-to-get-dental-work-in-mexicoHow Does Your Wealth Stack Up?You’ve seen plenty of people who appear to have it all. They live in beautiful homes. They drive fancy cars. They enjoy fabulous vacations that they post about on Facebook. Some of these people can afford to live large while they stockpile money into retirement accounts. But we live in a world of hyper-consumption. That means, by comparison, you might have more money than the flashy couple with a home beside the lake. Many people, for example, owe money on their cars. According to the Lending Tree, Americans owe $1.13 trillion on auto loans. That’s an increase of 41 percent since 2008. Revolving credit card debt hit an all-time high last year. Americans owe about $1 trillion on their plastic. &lt;br /&gt; &lt;br /&gt; Revolving Credit Card Debt &lt;br /&gt; 2008-2018&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Source: The Lending Tree; Federal Reserve &lt;br /&gt; Student loans are also at an all-time high. Americans owe $1.5 trillion in student loan debt…and millennials aren’t the only ones that feel the squeeze. The Lending Tree reports that 35 percent of student loan holders are over the age of 40. &lt;br /&gt; Student Loan Debt Is Rising Every Year &lt;br /&gt; 2008-2018&lt;br /&gt; Source: The Lending Tree; Federal ReserveSo…when we subtract people’s debts from their assets, how much money do they really have? And how do you stack up? The Federal Reserve reports net worth figures using SCF Data. They break down median and average levels of wealth based on age.Median levels of wealth are much lower than average levels. If we have 11 people with different levels of wealth, we determine the median by looking at the fifth person in the sequence. An average is different. It’s determined by adding the people’s net worth, then dividing that by the number of people in the sequence. When looking at net worth, average numbers are higher than the median because averages include the uber-rich. The net worth figures for people like Bill Gates and Warren Buffett skew the average numbers higher. Consider Americans between the ages of 50 and 54. According to 2016 Federal Reserve data, the average household net worth was $838,702. If we don’t include home equity, the average American household in the 50-54 year age group had a net worth of $701,558. Median numbers are different. Americans between the ages of 50 and 54 had median household net worth of just $137,866. If we don’t include home equity, their net worth was just $50,154. Median numbers are a better representation of the typical American.&lt;br /&gt; How Does Your Wealth Stack Up? &lt;br /&gt; Median and Average Net Worth By Age&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Age Group&lt;br /&gt; Median Net Worth&lt;br /&gt; Average Net Worth&lt;br /&gt; &lt;br /&gt; Median Net Worth, Not Including Home Equity on Primary Residence&lt;br /&gt; Average Net Worth, Not Including Home Equity on Primary Residence&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 25-29&lt;br /&gt; $8,971&lt;br /&gt; $39,565&lt;br /&gt; &lt;br /&gt; $4,397&lt;br /&gt; $16,941&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 30-34&lt;br /&gt; $29,125&lt;br /&gt; $95,235&lt;br /&gt; &lt;br /&gt; $15,980&lt;br /&gt; $58,702&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 35-39&lt;br /&gt; $40,666&lt;br /&gt; $257,581&lt;br /&gt; &lt;br /&gt; $17,247&lt;br /&gt; $202,975&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 40-44&lt;br /&gt; $87,842&lt;br /&gt; $316,660&lt;br /&gt; &lt;br /&gt; $36,392&lt;br /&gt; $231,092&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 45-49&lt;br /&gt; $105,717&lt;br /&gt; $599,194&lt;br /&gt; &lt;br /&gt; $50,462&lt;br /&gt; $459,091&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 50-54&lt;br /&gt; $137,866&lt;br /&gt; $838,702&lt;br /&gt; &lt;br /&gt; $50,154&lt;br /&gt; $701,558&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 55-59&lt;br /&gt; $166,044&lt;br /&gt; $1,150,037&lt;br /&gt; &lt;br /&gt; $69,338&lt;br /&gt; $979,492&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 60-64&lt;br /&gt; $224,775&lt;br /&gt; $1,180,377&lt;br /&gt; &lt;br /&gt; $105,875&lt;br /&gt; $985,790&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 65-69&lt;br /&gt; $209,575&lt;br /&gt; $1,056,483&lt;br /&gt; &lt;br /&gt; $94,665&lt;br /&gt; $871,948&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 70-74&lt;br /&gt; $233,614&lt;br /&gt; $1,062,427&lt;br /&gt; &lt;br /&gt; $77,472&lt;br /&gt; $861,025&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 75-79&lt;br /&gt; $242,699&lt;br /&gt; $1,097,415&lt;br /&gt; &lt;br /&gt; $69,551&lt;br /&gt; $887,051&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 80+&lt;br /&gt; $220,904&lt;br /&gt; $1,039,818&lt;br /&gt; &lt;br /&gt; $121,563&lt;br /&gt; $826,304&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Source: Federal Reserve, 2016 SCF Data&lt;br /&gt; &lt;br /&gt; &lt;br /&gt;Thomas J. Stanley was a wealth researcher from 1973-2015. He also co-authored The Millionaire Next Door. He devised a formula to determine how much net worth he thought a household should have. If we multiply a household’s gross annual income by their age, and divide by ten, he said this should represent the household’s net worth.Based on this formula, a 50 year-old couple with household income of $60,000 a year should have a net worth of $300,000 (50 x $60,000 divided by 10 = $300,000). Unfortunately, most 50-year old Americans don’t have anything close to that. Expected Net Worth Based On Age And Income&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Age&lt;br /&gt; 30&lt;br /&gt; 35&lt;br /&gt; 40&lt;br /&gt; 45&lt;br /&gt; 50&lt;br /&gt; 55&lt;br /&gt; 60&lt;br /&gt; 65&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Annual Income&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; $30,000&lt;br /&gt; $90,000&lt;br /&gt; $105,000&lt;br /&gt; $120,000&lt;br /&gt; $135,000&lt;br /&gt; $150,000&lt;br /&gt; $165,000&lt;br /&gt; $180,000&lt;br /&gt; $195,000&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; $40,000&lt;br /&gt; $120,000&lt;br /&gt; $140,000&lt;br /&gt; $160,000&lt;br /&gt; $180,000&lt;br /&gt; $200,000&lt;br /&gt; $220,000&lt;br /&gt; $240,000&lt;br /&gt; $260,000&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; $60,000&lt;br /&gt; $180,000&lt;br /&gt; $210,000&lt;br /&gt; $240,000&lt;br /&gt; $270,000&lt;br /&gt; $300,000&lt;br /&gt; $330,000&lt;br /&gt; $360,000&lt;br /&gt; $390,000&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; $80,000&lt;br /&gt; $240,000&lt;br /&gt; $280,000&lt;br /&gt; $320,000&lt;br /&gt; $360,000&lt;br /&gt; $400,000&lt;br /&gt; $440,000&lt;br /&gt; $480,000&lt;br /&gt; $520,000&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; $100,000&lt;br /&gt; $300,000&lt;br /&gt; $350,000&lt;br /&gt; $400,000&lt;br /&gt; $450,000&lt;br /&gt; $500,000&lt;br /&gt; $550,000&lt;br /&gt; $600,000&lt;br /&gt; $650,000&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; $120,000&lt;br /&gt; $360,000&lt;br /&gt; $420,000&lt;br /&gt; $480,000&lt;br /&gt; $540,000&lt;br /&gt; $600,000&lt;br /&gt; $660,000&lt;br /&gt; $720,000&lt;br /&gt; $780,000&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; $150,000&lt;br /&gt; $450,000&lt;br /&gt; $525,000&lt;br /&gt; $600,000&lt;br /&gt; $675,000&lt;br /&gt; $750,000&lt;br /&gt; $825,000&lt;br /&gt; $900,000&lt;br /&gt; $975,000&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Source: The Millionaire Next Door (1996) and The Next Millionaire Next Door (2018)&lt;br /&gt; &lt;br /&gt; &lt;br /&gt;The above table isn’t perfect. Nobody can accurately determine how much wealth we should have. Our needs, after all, differ. Some people will retire to expensive cities. They’ll require more than most. Others will find creative ways to boost their retirement income. They might rent out part of their home, with Airbnb. They might rent out their entire home and housesit around the world. But creating a stress-free retirement might require something else. While we’re still working, perhaps we should ignore Mr. and Mrs. Jones. After all, they might live in a huge house, earn high salaries and buy plenty of expensive toys. But if they’re saddled with debt, and if they aren’t stockpiling money for their retirement, they don’t really have it all. Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseashttps://assetbuilder.com/knowledge-center/articles/how-does-your-wealth-stack-upThu, 06 Dec 2018 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/how-does-your-wealth-stack-upSocially Responsible Index Funds: No Guns, Cigarettes or Sky-High Carbon FootprintsEarlier this month, a gunman opened fire at Borderline Bar and Grill, in Thousand Oaks, California. Thirteen people were killed, including the shooter. According to data from the Gun Violence Archive, it was the 307th mass shooting in the United States this year.&lt;br /&gt;More Americans now support increased gun control policies. NPR initiated a survey of 1,005 adults. It included 351 Democrats, 341 Republicans and 203 Independents. On February 28, 2018, 92 percent of Democrats favored stricter gun control rules. That was up from 84 percent on October 17, 2017. Fifty-nine percent of Republicans and 68 percent of Independents also wanted stricter rules.&lt;br /&gt;On February 26th, 2018, The New York Times published, You Might Be A Gun Owner, Even If You Don’t Possess A Weapon. Plenty of mutual funds include shares in a wide range of so-called “sin stocks.” They include weapons manufacturers, cigarette companies, alcoholic beverage businesses, casinos and companies associated with pornography. Most index funds include such stocks.&lt;br /&gt;That’s why some investors shun index funds. Instead, they favor specific actively managed funds categorized as socially responsible or sustainable. Such funds don’t include stocks in the aforementioned industries. America’s largest socially responsible fund is The Parnassus Core Equity Fund (PRBLX). Its annual expense ratio is 0.87 percent.&lt;br /&gt;Vanguard’s FTSE Social Index (VFTSX) was the first low-cost challenger. Its annual expenses are 0.2 percent. It also beat The Parnassus Core Equity Fund over the past 3, 5 and 10 year-periods. The Vanguard fund excludes stocks that don’t adhere to certain social, human-rights and environmental criteria. It also excludes companies involved with weapons, tobacco, gambling, alcohol, adult entertainment and nuclear power.&lt;br /&gt;Critics of socially responsible funds, however, say they don’t perform well. But such critics might be wrong. The Parnassus Core Equity Fund, for example, has a strong performance record. Vanguard’s FTSE Social Index might be even better. It beat the S&amp;P 500 over the past 3, 5 and 10-year periods.&lt;br /&gt;&lt;br /&gt;Socially Responsible Funds Can Perform Well &lt;br /&gt;Returns Ending November 16, 2018&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Fund&lt;br /&gt; &lt;br /&gt; Average Annual 3-Year Return&lt;br /&gt; &lt;br /&gt; Average Annual 5-Year Return&lt;br /&gt; &lt;br /&gt; Average Annual 10-Year Return&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; The Parnassus Core Equity Fund (PRBLX)&lt;br /&gt; &lt;br /&gt; 11.13%&lt;br /&gt; &lt;br /&gt; 10.03%&lt;br /&gt; &lt;br /&gt; 13.85%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Vanguard’s FTSE Social Index (VFTSX)&lt;br /&gt; &lt;br /&gt; 12.74%&lt;br /&gt; &lt;br /&gt; 11.64%&lt;br /&gt; &lt;br /&gt; 15.76%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Vanguard’s S&amp;P 500 Index (VFINX)&lt;br /&gt; &lt;br /&gt; 12.18%&lt;br /&gt; &lt;br /&gt; 10.87%&lt;br /&gt; &lt;br /&gt; 14.37%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Source: Morningstar.com&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Until recently, Americans couldn’t build a diversified portfolio of socially responsible, low-cost index funds. But an increasing number of investors are warming to these products. Fidelity says, “Demand for sustainable investment opportunities also appears to be particularly high among younger investors. More than 8 in 10 millennials said they were interested in sustainable investing, according to another survey by Morgan Stanley. Given that millennials are expected to have $19 trillion to $24 trillion in assets by 2020, sustainable investing may have some wind at its back.”&lt;br /&gt;That’s why Fidelity and iShares have raised some giant sails. Each firm now has several socially responsible stock and bond market index funds. You might not personally stop gun violence or eliminate global warming. But if socially responsible funds help you sleep at night, these portfolios might be worth it.&lt;br /&gt;&lt;br /&gt;Portfolio Models With Fidelity’s Socially Responsible Index Funds&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Funds&lt;br /&gt; &lt;br /&gt; Expense Ratio&lt;br /&gt; &lt;br /&gt; Conservative Allocation&lt;br /&gt; &lt;br /&gt; Cautious Allocation&lt;br /&gt; &lt;br /&gt; Balanced Allocation&lt;br /&gt; &lt;br /&gt; Assertive Allocation&lt;br /&gt; &lt;br /&gt; Aggressive Allocation&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Fidelity U.S. Sustainability Index Fund (FENSX) &lt;br /&gt; &lt;br /&gt; 0.11%&lt;br /&gt; &lt;br /&gt; 15%&lt;br /&gt; &lt;br /&gt; 25%&lt;br /&gt; &lt;br /&gt; 30%&lt;br /&gt; &lt;br /&gt; 40%&lt;br /&gt; &lt;br /&gt; 45%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Fidelity International Sustainability Index Fund (FNIYX) &lt;br /&gt; &lt;br /&gt; 0.20%&lt;br /&gt; &lt;br /&gt; 15%&lt;br /&gt; &lt;br /&gt; 20%&lt;br /&gt; &lt;br /&gt; 30%&lt;br /&gt; &lt;br /&gt; 35%&lt;br /&gt; &lt;br /&gt; 45%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Fidelity Sustainable Bond Index Fund (FNDSX)&lt;br /&gt; &lt;br /&gt; 0.10%&lt;br /&gt; &lt;br /&gt; 70%&lt;br /&gt; &lt;br /&gt; 55%&lt;br /&gt; &lt;br /&gt; 40%&lt;br /&gt; &lt;br /&gt; 25%&lt;br /&gt; &lt;br /&gt; 10%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Total&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 100%&lt;br /&gt; &lt;br /&gt; 100%&lt;br /&gt; &lt;br /&gt; 100%&lt;br /&gt; &lt;br /&gt; 100%&lt;br /&gt; &lt;br /&gt; 100%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Source: Fidelity.com&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Portfolio Models with iShares Socially Responsible Index Funds&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Funds&lt;br /&gt; &lt;br /&gt; Expense Ratio&lt;br /&gt; &lt;br /&gt; Conservative Allocation&lt;br /&gt; &lt;br /&gt; Cautious Allocation&lt;br /&gt; &lt;br /&gt; Balanced Allocation&lt;br /&gt; &lt;br /&gt; Assertive Allocation&lt;br /&gt; &lt;br /&gt; Aggressive Allocation&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; iShares U.S. Sustainable Index (ESGU)&lt;br /&gt; &lt;br /&gt; 0.15%&lt;br /&gt; &lt;br /&gt; 15%&lt;br /&gt; &lt;br /&gt; 25%&lt;br /&gt; &lt;br /&gt; 30%&lt;br /&gt; &lt;br /&gt; 35%&lt;br /&gt; &lt;br /&gt; 40%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; iShares International Developed Sustainable Index (ESGD)&lt;br /&gt; &lt;br /&gt; 0.20%&lt;br /&gt; &lt;br /&gt; 10%&lt;br /&gt; &lt;br /&gt; 15%&lt;br /&gt; &lt;br /&gt; 25%&lt;br /&gt; &lt;br /&gt; 30%&lt;br /&gt; &lt;br /&gt; 35%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; iShares Emerging Markets Sustainable Index (ESGE)&lt;br /&gt; &lt;br /&gt; 0.25%&lt;br /&gt; &lt;br /&gt; 5%&lt;br /&gt; &lt;br /&gt; 5%&lt;br /&gt; &lt;br /&gt; 5%&lt;br /&gt; &lt;br /&gt; 10%&lt;br /&gt; &lt;br /&gt; 15%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; iShares Aggregate Sustainable Bond Index (EAGG)&lt;br /&gt; &lt;br /&gt; 0.10%&lt;br /&gt; &lt;br /&gt; 70%&lt;br /&gt; &lt;br /&gt; 55%&lt;br /&gt; &lt;br /&gt; 40%&lt;br /&gt; &lt;br /&gt; 25%&lt;br /&gt; &lt;br /&gt; 10%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Total&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 100%&lt;br /&gt; &lt;br /&gt; 100%&lt;br /&gt; &lt;br /&gt; 100%&lt;br /&gt; &lt;br /&gt; 100%&lt;br /&gt; &lt;br /&gt; 100%&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Source: iShares.com&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas&lt;br /&gt;https://assetbuilder.com/knowledge-center/articles/socially-responsible-index-funds-no-guns-cigarettes-or-sky-high-carbon-footprintsThu, 29 Nov 2018 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/socially-responsible-index-funds-no-guns-cigarettes-or-sky-high-carbon-footprintsThe Next Millionaire Next Door Provides A Road Map For Us AllI was speaking to roughly 500 high school students in Singapore last week. The students represented about 50 different nationalities. Many were American. At one point, I asked them to call out brand names that they thought most millionaires are attracted to. They hollered out names like Rolex, Gucci, Porsche, Ferrari, Prada, and Louis Vuitton. Yes, some wealthy people prefer high-status brands. But according to the late wealth researcher, Thomas J. Stanley, most wealthy Americans don’t. Instead, they have modest consumption tastes. Most millionaires, for example, don’t drive fancy cars. Most don’t live in fancy homes. Most don’t collect wines, antiques or belong to swanky clubs. Thomas Stanley said some wealthy people like high-end cars. But millionaires aren’t driving most of the high-end cars we see on the streets. Instead, it’s people with high salaries and low wealth that are most attracted to these cars. High income, after all, doesn’t mean someone is wealthy. As Dr. Stanley always said, a person’s financial net worth and their salary aren’t always correlated. These aren’t just curious facts. If we want to build wealth or financial independence, it might be wise to emulate some of the habits of the rich. Instead, many people buy what they can’t afford. They borrow money to do so. As a result, they hamper their ability to become financially independent. This tendency isn’t limited to America. I read an article in Singapore’s Straits Times newspaper during the global recession in 2009. Ferrari owners were returning their cars to dealerships in droves. If the Ferrari drivers were rich, they could have kept those cars, even if they lost their jobs. But if they owed money on those cars, of if they leased them, the reality would be different. Most of those Ferrari owners probably weren’t rich.Thomas J. Stanley and William D. Danko published The Millionaire Next Doorin 1996. Thomas Stanley continued to research the habits of wealthy people. He published The Millionaire Mind in 2001 and Stop Acting Rich in 2011. I gobbled them up. Dr. Stanley’s work was one of the biggest inspirations for my own financial independence. Over the past 18 months, I’ve given more than 130 talks in 17 different countries. I talk about investing in low-cost index funds, but I also speak prolifically about Thomas Stanley’s research. That’s why I was crushed to learn of his death in 2015. He was killed in a car crash, at the hands of a drunk driver. He had been working on a new book with his daughter, Sarah Stanley Fallaw. I hoped she would have the strength to finish the work she had started with her father. That’s why I was thrilled to see The Next Millionaire Next Door at an airport bookstore when I left Singapore last week. Twenty-two years have passed since Stanley and Danko’s original classic. But the habits of the rich have remained much the same. Most millionaires, for example, still don’t drive high-end automobiles. In 1996, Fords were the most popular vehicles for the rich. In 2016, Toyotas took top spot. &lt;br /&gt; Top Makes of Motor Vehicles Among Millionaires In 2016&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Make&lt;br /&gt; Rank&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Toyota&lt;br /&gt; 1&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Honda&lt;br /&gt; 2&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Ford&lt;br /&gt; 3&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; BMW&lt;br /&gt; 4&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Chevrolet&lt;br /&gt; 5&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Lexus&lt;br /&gt; 6&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Nissan&lt;br /&gt; 7&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Subaru&lt;br /&gt; 8&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Dodge&lt;br /&gt; 9&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Mercedes&lt;br /&gt; 10&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Audi&lt;br /&gt; 11&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Volkswagen&lt;br /&gt; 12&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Hyundai&lt;br /&gt; 13&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Acura&lt;br /&gt; 14&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Kia&lt;br /&gt; 15&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Source: The Next Millionaire Next Door&lt;br /&gt; &lt;br /&gt; &lt;br /&gt;Sarah Stanley Fallaw says seventy-five percent of millionaires paid less than $1000 for their most expensive suit. Fifty percent of millionaires paid less than $300 for their most expensive watch. Three-quarters of American millionaires paid less than $300 for their most expensive pair of shoes. She also found that 65 percent of American millionaires live in homes that are currently worth less than a million dollars. Today, about 9 percent of U.S. households have a net worth that exceeds a million dollars. That’s up from 3.5 percent in 1996. Most millionaires (93 percent) have a college degree. But most millionaires didn’t go to an expensive private college. “Going to a name-brand college is a status symbol like wearing designer clothes or owning a luxury vehicle,” says Dr. Stanley Fallaw. “You can advertise your entrance and matriculation on social media, and friends and neighbors will tell you that it’s so great that your daughter is going to a school with an NCAA Division 1 football team. But if that college comes with 5 to 10 to 20 or more years of debt afterwards, the short-lived rush of telling others you’re going to a school you cannot afford is financially dangerous.”What’s more, a high-priced college might not be the future income generator that many people think it is. The Next Millionaire Next Door is sobering and inspiring. It should also be required reading for every high school student. Like her father’s previous work, it provides a solid philosophy (some might call it a roadmap) for anyone who wants to become financially independent. Sarah Stanley Fallaw, your father would be proud. Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseashttps://assetbuilder.com/knowledge-center/articles/the-next-millionaire-next-door-provides-a-road-map-for-us-allThu, 22 Nov 2018 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/the-next-millionaire-next-door-provides-a-road-map-for-us-allWhy Retirees and Millennials Face a Tug of WarMy father wasn’t a drill sergeant. But when I was a kid, and things didn’t go my way, he would tell me to “toughen up.” When I complained about high school, he reminded me of his own teenaged years in England: “When I was 16 years old, I worked full-time as a mechanic’s apprentice. At night, I studied at a vocational college to become a full-fledged mechanic. And nearly all the money I earned went to my parents.”I’m part of the so-called Generation X. But my father and I shared a certain trait. I also believed the next generation–in my case, millennials or Generation Y– needed to toughen up. Plenty of people say millennials aren’t resilient. Too many people in their 20s were told they were special when they were kids. They often earned sports medals and trophies just for showing up. Simon Sinek wrote the bestselling book, Leaders Eat Last. In an interview with Inside IQ Quest, he shared his thoughts on millennials. He says they were raised to be entitled, self-absorbed and emotionally vulnerable to failure. Maybe he’s right. Perhaps they were coddled more than previous generations. But my view has come full-circle. Today, I have a soft spot for millennials. I credit Scott Burns and Laurence J. Kotlikoff. They wrote The Clash of Generations: Saving Ourselves, Our Kids and Our Economy. They explained how today’s retirees have advantages that the next generations won’t. Today’s retirees, for example, earn strong Social Security benefits. But are the payout schemes too high? It’s well-known that Social Security’s coffers might be running low. Burns and Kotlikoff say Generations X and Y will be stuck with the bill. They describe Social Security as a giant ponzi scheme where one generation’s contributions fund the previous generation. But my generation had fewer children than the boomers did. As a result, Social Security will have a lower taxable base. That’s why Social Security might shortchange the next two generations. If that weren’t bad enough, defined benefit pensions are becoming a thing of the past. The Boston College Center for Retirement Research estimated that 62 percent of workers in 1983 were enrolled in such plans. By 2007, that number had dropped to just 17 percent. That number has dropped even further for today’s young workers.College costs are also higher than they have ever been before. Even after accounting for inflation, The College Board says tuition, fees, room and board at a four-year private college cost twice as much as they did 30 years ago. The cost of public four-year colleges have risen even faster. As a result, an entire generation of college graduates are burdened by massive debts. CNBC reporter Abigail Hess says 44 million Americans collectively owe $1.5 trillion in student loan debt. That means roughly one in four American adults are paying off student loans. The vast majority are from Generations X and Y.Home prices, in many U.S. cities, have also soared out of reach for many young workers. Today’s retirees, when they were young, had an easier time affording homes. But in cities like Manhattan, San Diego, Seattle, Washington D.C., Oakland, Boston, Los Angeles and San Franscisco, affordability is a dream of a bygone era. The typical 65-year old today had other wealth-building tailwinds. They would have been 30 years-old in 1983. U.S. stocks were cheap. The cyclically-adjusted price-to-earnings ratio was about 8 times earnings. That’s almost 50 percent cheaper than the historical long-term average. Today, U.S. stocks trade at a nosebleed CAPE level of 35 times earnings. That’s more than twice as high as the historical long-term average.In 1983, the 10-year yield on U.S. Treasury Bonds was 10.46 percent. The average dividend yield on U.S. stocks exceeded 4 percent. Low stock price levels (relative to business earnings) meant investors paid far less for their shares of corporate profits. That’s why Baby Boomer investors had strong winds at their backs.Of course, they had some setbacks along the way. There were market crashes in 2001/2002 and in 2008. But from January 1983 to October 31, 2018, U.S. stocks averaged a compound annual return of 10.79 percent. It might be history’s most profitable 35-year stretch. If somebody invested $280 a month into the S&amp;P 500, starting in 1983, they would have more than $1 million today. Millennials invest in much less fertile ground. Today, U.S. stocks trade at nosebleed levels. The S&amp;P 500 has a dividend yield of about 1.88 percent. That compares to a dividend yield of more than 4 percent in 1983. Today’s interest yield on a 10-year Treasury bond is about 3.2 percent. That compares to a 10.46 percent yield back in 1983. Millenials should hope that stocks stagnate for years… or that stocks fall hard. It would allow them to pay lower prices for stock market shares. As a result of lower prices, dividend yields would rise. This would increase their odds of building stock market wealth. Some of my friends, however, are already retired. They don’t want stocks to fall. And that makes sense. Retirees are selling their stock market assets. They want to see those assets rise. But they also came from a wealth-building golden-time. They earn solid Social Security payments. They paid lower college costs. Home prices were more affordable when they were young. Plenty of them earn defined benefit pensions. And they invested during a fabulous stock market run.Some retirees say millennials are far too entitled. But millennials have a right to loudly call them out. After all, the boomer generation earned the biggest breaks. Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseashttps://assetbuilder.com/knowledge-center/articles/why-retirees-and-millennials-face-a-tug-of-warThu, 15 Nov 2018 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/why-retirees-and-millennials-face-a-tug-of-warHow A Stock Market Crash Could Accelerate Your FIRENathalie Legr&#233;e is a great saver.&#160; Motivated by the FIRE movement, she wants to gain Financial Independence and Retire Early.&#160; The 33-year old teacher joins a growing number of millennials that have decided to live frugally and sock away large percentages of their incomes every year. Nathalie already owns a couple of houses.&#160; She also has $60,000 invested in portfolio of low-cost index funds.&#160; Currently she’s investing about $2000 a month.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; Nathalie Legr&#233;e; Photo courtesy of Nathalie Legr&#233;e&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;But the recent market crash has tossed water on her flames.&#160; “I started to invest in a portfolio of ETFs about a year and a half ago,” she says.&#160; “But the market’s drop has me wondering if I’ve made the right decision.&#160; It has me thinking that perhaps I should invest in real estate instead.”&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;She isn’t alone.&#160; Tim Van Vliet is a 34-year old pilot who aims to be financially independent in about 10 years.&#160; “I heard about this FIRE movement over the last couple of years,” he says.&#160; “But now, with the stock market drop, my wife and I are feeling a bit uneasy to see our portfolio value drop.”&#160; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Like many new investors, Nathalie and Tim have never experienced a stock market drop.&#160; U.S. stocks rose every year from 2009 to 2017.&#160; That’s an all-time record, calendar year streak. &#160;The S&amp;P 500 averaged a compound annual return of 15.11 percent over that nine-year period.&lt;br /&gt;&lt;br /&gt;But the recent stock market’s drop might help Nathalie’s and Tim’s early retirement goals, if they can harness their emotions. &lt;br /&gt;&lt;br /&gt;William Bernstein, the former neurologist turned financial advisor, says young investors should&#160;“pray for a long, awful [down] market.”&#160; In his book,&#160;If You Can, he says that when stocks drop, investors pay less money for a greater number of shares. When people invest consistent sums every month (dollar cost averaging) they can stockpile assets when they’re cheap.&#160; When the markets recover, those asset values soar.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; Tim Van Vliet pictured with his son, David, and his wife Oylum:&#160; Photo courtesy of Tim Van Vliet&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Warren Buffett says much the same thing in his 1997 letter to Berkshire Hathaway shareholders:&lt;br /&gt;&lt;br /&gt;“If you will be a net saver over the next five years, should you hope for a higher or lower stock market during that time period?&#160; Many investors get this one wrong.&#160; Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall…This reaction makes no sense.&#160; Only those who will be sellers of equities [stock market investments] in the near future should be happy at seeing stocks rise.&#160; Prospective purchasers should much prefer sinking prices.”&lt;br /&gt;&lt;br /&gt;I gave Nathalie two scenarios, asking which she might prefer.&lt;br /&gt;In Scenario 1, the stock market soars for three straight years.&#160; Over 18 years, it gains a compound annual return of 8.42 percent. &lt;br /&gt;In Scenario 2, the stock market slumps for three straight years.&#160; Over 18 years, it gains a compound annual return of 5.29 percent.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; A Tale of Two Scenarios&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Scenario 1&lt;br /&gt; &#160;&lt;br /&gt; Scenario 2&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Year&lt;br /&gt; Stock Market Return&lt;br /&gt; &#160;&lt;br /&gt; Year&lt;br /&gt; Stock Market Return&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2018&lt;br /&gt; +37.58%&lt;br /&gt; &#160;&lt;br /&gt; 2018&lt;br /&gt; -9.1%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2019&lt;br /&gt; +22.96%&lt;br /&gt; &#160;&lt;br /&gt; 2019&lt;br /&gt; -11.89%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2020&lt;br /&gt; +33.36%&lt;br /&gt; &#160;&lt;br /&gt; 2020&lt;br /&gt; -22.10%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2018 – 2035 (18-Year Average) &lt;br /&gt; +8.42%*&lt;br /&gt; &#160;&lt;br /&gt; 2018 – 2035 (18-Year Average)&lt;br /&gt; +5.29%*&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; *The average compound annual return for each respective time period&lt;br /&gt; &lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Nathalie says, “I would absolutely prefer Scenario 1.&#160; Seeing your stocks rise on a yearly basis is always more reasurring. Those look like strong numbers that promote trust in the market.”&lt;br /&gt;&lt;br /&gt;But Scenario 2 might make her more money, despite starting off with three bad years and recording a lower 18-year compound annual return.&#160; After all, if a young investor adds money every month, that would buy a greater number of units when the market drops.&#160; This could boost Nathalie’s long-term return when stocks recover.&lt;br /&gt;&lt;br /&gt;I didn’t pull these scenarios out of a hat. &#160;Each represents different historical 18-year returns for the S&amp;P 500. &lt;br /&gt;&lt;br /&gt;Scenario 1 shows the returns from January 1, 1995 to December 31, 2012.&#160; Stocks soared in 1995, 1996 and 1997, gaining 37.58 percent, 22.96 percent and 33.36 percent respectively.&#160; A lump sum investment in the S&amp;P 500 would have earned a compound annual return of 8.42 percent over this 18-year time period.&lt;br /&gt;&lt;br /&gt;Scenario 2 represents the actual returns of the S&amp;P 500 from January 1, 2000 to December 31, 2017.&#160; Stocks dropped right out of the gate, losing 9.1 percent in 2000, losing 11.89 percent in 2001 and losing 22.10 percent in 2002. A lump sum investment in the S&amp;P 500 would have earned a compound annual return of just 5.29 percent over this 18-year duration. &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Actual Returns of the S&amp;P 500&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Scenario 1&lt;br /&gt; &#160;&lt;br /&gt; Scenario 2&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Year&lt;br /&gt; S&amp;P 500 Stock Market Return&lt;br /&gt; &#160;&lt;br /&gt; Year&lt;br /&gt; S&amp;P 500 Stock Market Return&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 1995&lt;br /&gt; +37.58%&lt;br /&gt; &#160;&lt;br /&gt; 2000&lt;br /&gt; -9.1%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 1996&lt;br /&gt; +22.96%&lt;br /&gt; &#160;&lt;br /&gt; 2001&lt;br /&gt; -11.89%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 1997&lt;br /&gt; +33.36%&lt;br /&gt; &#160;&lt;br /&gt; 2002&lt;br /&gt; -22.10%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 1995-2012&lt;br /&gt; +8.42%*&lt;br /&gt; &#160;&lt;br /&gt; 2000-2017&lt;br /&gt; +5.29%*&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; *The average compound annual return for each respective time period&lt;br /&gt; &lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Let’s start with Scenario 1. &lt;br /&gt;&lt;br /&gt;Assume Nathalie had $50,000 in a portfolio of low-cost index funds in January 1995. &#160;If she had invested an additional $2000 a month into the S&amp;P 500 from January 1995 until December 2012, her money would have grown to $924,579.&lt;br /&gt;&lt;br /&gt;Now let’s look at Scenario 2&lt;br /&gt;&lt;br /&gt;Assume Nathalie had $50,000 in a portfolio of low-cost index funds in January 2000.&#160; If she had added $2000 into the S&amp;P 500 from January 2000 until December 2017, her money would have grown to $1,187,309.&#160; That’s a whopping difference of $262,730 over what she would have earned in Scenario 1.&lt;br /&gt;&lt;br /&gt;In other words, experiencing three huge calendar year losses, early in her investment journey, would have boosted her annual return.&#160; She would have earned a compound annual return of 8.43 percent per year, despite the fact that the market averaged a compound annual return of just 5.29 percent over that same time period.&lt;br /&gt;&lt;br /&gt;Unfortunately, plenty of investors lose faith when they see poor returns.&#160; They don’t dollar-cost average through good and bad markets. Instead, they let greed and fear dictate their decisions.&#160; &lt;br /&gt;But young investors, like Nathalie and Tim, should hope for falling markets.&#160; If they conquer their emotions, it might accelerate their FIRE.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Scenario 1 and 2 &lt;br /&gt; &lt;br /&gt; $50,000 Starting Value &lt;br /&gt; $2000 Per Month Invested In Vanguard’s S&amp;P 500 &lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Scenario 1&lt;br /&gt; &#160;&lt;br /&gt; Scenario 2&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Year&lt;br /&gt; Portfolio Return*&lt;br /&gt; Portfolio Balance&lt;br /&gt; &#160;&lt;br /&gt; Year&lt;br /&gt; Portfolio Return*&lt;br /&gt; Portfolio Balance&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt; &lt;br /&gt; 1995&lt;br /&gt; 37.45% &lt;br /&gt; $96,263&lt;br /&gt; &#160;&lt;br /&gt; 2000&lt;br /&gt; -9.06% &lt;br /&gt; $67,658&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 1996&lt;br /&gt; 22.88%&lt;br /&gt; $144,988&lt;br /&gt; &#160;&lt;br /&gt; 2001&lt;br /&gt; -12.02% &lt;br /&gt; $83,278&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 1997&lt;br /&gt; 33.19%&lt;br /&gt; $220,107&lt;br /&gt; &#160;&lt;br /&gt; 2002&lt;br /&gt; -22.15% &lt;br /&gt; $86,616&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 1998&lt;br /&gt; 28.62%&lt;br /&gt; $310,550&lt;br /&gt; &#160;&lt;br /&gt; 2003&lt;br /&gt; 28.50%&lt;br /&gt; $139,308&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 1999&lt;br /&gt; 21.07%&lt;br /&gt; $402,701&lt;br /&gt; &#160;&lt;br /&gt; 2004&lt;br /&gt; 10.74%&lt;br /&gt; $180,136&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2000&lt;br /&gt; -9.06%&lt;br /&gt; $388,717&lt;br /&gt; &#160;&lt;br /&gt; 2005&lt;br /&gt; 4.77%&lt;br /&gt; $213,757&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2001&lt;br /&gt; -12.02%&lt;br /&gt; $365,472&lt;br /&gt; &#160;&lt;br /&gt; 2006&lt;br /&gt; 15.64%&lt;br /&gt; $273,268&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2002&lt;br /&gt; -22.15%&lt;br /&gt; $306,318&lt;br /&gt; &#160;&lt;br /&gt; 2007&lt;br /&gt; 5.39%&lt;br /&gt; $312,058&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2003&lt;br /&gt; 28.50%&lt;br /&gt; $421,629&lt;br /&gt; &#160;&lt;br /&gt; 2008&lt;br /&gt; -37.02% &lt;br /&gt; $215,040&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2004&lt;br /&gt; 10.74%&lt;br /&gt; $492,779&lt;br /&gt; &#160;&lt;br /&gt; 2009&lt;br /&gt; 26.49%&lt;br /&gt; $300,991&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2005&lt;br /&gt; 4.77%&lt;br /&gt; $541,328&lt;br /&gt; &#160;&lt;br /&gt; 2010&lt;br /&gt; 14.91%&lt;br /&gt; $372,899&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2006&lt;br /&gt; 15.64%&lt;br /&gt; $652,076&lt;br /&gt; &#160;&lt;br /&gt; 2011&lt;br /&gt; -9.06% &lt;br /&gt; $404,079&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2007&lt;br /&gt; 5.39%&lt;br /&gt; $711,270&lt;br /&gt; &#160;&lt;br /&gt; 2012&lt;br /&gt; 15.82%&lt;br /&gt; $492,988&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2008&lt;br /&gt; -37.02%&lt;br /&gt; $466,462&lt;br /&gt; &#160;&lt;br /&gt; 2013&lt;br /&gt; 32.18%&lt;br /&gt; $678,819&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2009&lt;br /&gt; 26.49%&lt;br /&gt; $619,003&lt;br /&gt; &#160;&lt;br /&gt; 2014&lt;br /&gt; 13.51%&lt;br /&gt; $776,209&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2010&lt;br /&gt; 14.91%&lt;br /&gt; $738,339&lt;br /&gt; &#160;&lt;br /&gt; 2015&lt;br /&gt; 1.25%&lt;br /&gt; $830,299&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2011&lt;br /&gt; 1.97%&lt;br /&gt; $776,703&lt;br /&gt; &#160;&lt;br /&gt; 2016&lt;br /&gt; 11.82%&lt;br /&gt; $954,232&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; 2012&lt;br /&gt; 15.82%&lt;br /&gt; $924,579&lt;br /&gt; &#160;&lt;br /&gt; 2017&lt;br /&gt; 21.67%&lt;br /&gt; $1,187,309&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Compound Annual Rate of Return For The S&amp;P 500 (What a lump sum would have averaged)&lt;br /&gt; 8.42%&lt;br /&gt; &#160;&lt;br /&gt; Compound Annual Rate of Return For The S&amp;P 500 (What a lump sum would have averaged)&lt;br /&gt; 5.29%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Compound Annual Rate of Return (Consistent Dollar Cost Averaging Each Month)&lt;br /&gt; 6.20%&lt;br /&gt; &#160;&lt;br /&gt; Compound Annual Rate of Return (Consistent Dollar Cost Averaging Each Month)&lt;br /&gt; 8.43%&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt; Source:&#160; portfoliovisualizer.com &lt;br /&gt; *Note:&#160; Portfolio returns represent actual returns in the S&amp;P 500 with an initial value of $50,000, followed by monthly contributions of $2000 a month.&lt;br /&gt; &lt;br /&gt; &lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas&lt;br /&gt;https://assetbuilder.com/knowledge-center/articles/how-a-stock-market-crash-could-accelerate-your-fireThu, 08 Nov 2018 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/how-a-stock-market-crash-could-accelerate-your-fireWhen Stocks Drop, The Biggest Threat is the Person You Face In The MirrorJean Melek feels queasy. &#160;The 50-year old school teacher’s investments have dropped almost 8 percent over the past 30 days.&#160; Plenty of forecasters say stocks will fall further.&#160; “We’ve been getting frequent newsletter emails from Charles Schwab,” she says.&#160; “They’re telling us not to panic.&#160; But for us, those emails are having the opposite effect.”&lt;br /&gt;&lt;br /&gt;Jean’s brokerage has the right idea.&#160; But it’s tough to harness stock market panic. News media networks love reporting bad news. &#160;If they can find someone calling for financial Armageddon, they happily amplify that voice.&#160; The recent market crash is no exception.&#160; And it’s especially tough on investors like Jean.&#160; She and her 48-year old husband have never experienced a stock market crash.&#160; They first started to invest in 2009. &#160;U.S. stocks have risen every year since then.&lt;br /&gt;&lt;br /&gt;U.S. stocks rose in 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2017.&#160; That was an all-time record calendar-year streak.&#160; As I wrote in April, such consistent gains aren’t normal.&#160; Instead, &#160;stock market drops are normal. &lt;br /&gt;&lt;br /&gt;Between 1926 and 2017, the S&amp;P 500 averaged a compound annual return of 9.77 percent.&#160; That’s why investors expect annual returns between 8 to 10 percent. But since 1926, the S&amp;P 500 has never recorded a calendar year return within that range.&#160; Not once.&#160; Each individual year, the S&amp;P 500 has recorded calendar year results below 8 percent or above 10 percent.&#160; On average, U.S. stocks fall 1 out of every 3 years. If we adjust our investment behavior based on stock market forecasts, we usually pay a hefty price.&lt;br /&gt;&lt;br /&gt;Plenty of people fear stock market drops, especially new investors.&#160; When stocks fall, many people sell.&#160; Plenty of others cease to add fresh money.&#160; They stop contributing to their investments.&#160; They choose to wait until things return to normal.&#160; But this is as crazy as eating sand for breakfast– because market drops are normal.&lt;br /&gt;&lt;br /&gt;The chart below shows mutual fund redemption levels between 1986 and 2015. Redemptions occur when people lose faith in their funds and they sell. &#160;Notice the mutual fund redemptions in 1987.&#160; Many people sold, mid-year, as the stock market crashed.&#160; But such investors missed out.&#160; U.S. stocks recovered quickly, actually earning a profit in 1987.&#160; The investors that sold sealed in their losses.&lt;br /&gt;&lt;br /&gt;Notice the increasing number of investors that sold their mutual funds between 2001 and 2002.&#160; During that time, stocks were on sale.&#160; The S&amp;P 500 had dropped almost 37 percent between January 2001 and October 30, 2002.&#160; But investors who sold during those 20 months paid a hefty price.&#160; Many sold low, only to buy back later after the market had climbed. From October 30, 2002 until October 30, 2006, the S&amp;P 500 gained a total of 68 percent.&#160; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;&lt;br /&gt; Peaks Revealing When Mutual Fund Investors Were Selling The Most&lt;br /&gt; &lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Notice the high redemptions in 2008 and early 2009.&#160; U.S. stocks dropped about 37 percent in 2008.&#160; That should have been a signal to buy even more.&#160; But as seen on the chart, too many investors sold.&#160; Many of those same investors re-entered the market, after it had risen.&lt;br /&gt;&lt;br /&gt;Investing is simple.&#160; Build a diversified portfolio of low-cost index funds.&#160; It should include exposure to U.S. stocks, international stocks and bonds. If you’re working, add money every month.&#160; Rebalance the portfolio once a year to keep a consistent allocation.&#160; Don’t pay attention to market forecasts.&#160; Tune out stock market news.&#160; It might be best, in fact, to never look at your portfolio’s balance.&lt;br /&gt;&lt;br /&gt;This sounds simple.&#160; But most people mess it up.&#160; Here’s an example.&#160; Between 2003 and 2013, U.S. stock market funds averaged a compound annual return of 7.3 percent.&#160; That would have turned a $10,000 investment into $20,230.&#160; But according to Morningstar, the average investor in U.S. stock market funds averaged a compound annual return of just 4.8 percent over the same time period.&#160; That would have turned a $10,000 investment into $15,981.&#160; &lt;br /&gt;&lt;br /&gt;This is a really big deal.&#160; Instead of earning a $10,230 profit, the average investor earned a profit of just $5,981 on a $10,000 investment.&#160; In only ten years the simple investor has left the average investor in the dust, opening a gap that will compound year after year. &lt;br /&gt;&lt;br /&gt;Many investors didn’t perform well because they let greed and fear make their decisions.&#160; They listened to market forecasts.&#160; They didn’t stay the course. When stocks fell hard, many investors sold or they ceased to add fresh money. Stock market journalists, as they often do, added acid to investors’ stomachs with their end-of-the world headlines. &lt;br /&gt;&lt;br /&gt;I’ve been giving investment seminars for about 15 years.&#160; Sometimes, I meet the same investors many years later.&#160; They often show me their portfolios.&#160; But most of the time, their performance lags the results of the funds they own. I’ve also noticed a difference between men and women. Men are more likely to violate investment rules.&#160; They speculate more.&#160; Men are more likely to ask about Bitcoin. &#160;They listen more to the media and their ever-churning guts.&#160; Men try to time the market more.&#160; But such timing doesn’t work.&#160; Plenty of studies confirm what I’ve observed.&lt;br /&gt;&lt;br /&gt;If you’ll be earning an income over the next five years, celebrate market drops.&#160; If you’re young, smile even broader when the market falls. &#160;If you retire on the cusp of a market drop, maintain your cool.&#160; Stay calm, diversify and follow investment rules.&#160; If you do, you shouldn’t run out of money.&lt;br /&gt;&lt;br /&gt;Stock market drops might cause your gut to ache.&#160; But they’re normal.&#160; The bigger enemy, unfortunately, might be the person in the mirror.&#160; &lt;br /&gt;&lt;br /&gt;Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas&lt;br /&gt;https://assetbuilder.com/knowledge-center/articles/when-stocks-drop-the-biggest-threat-is-the-person-you-face-in-the-mirrorThu, 01 Nov 2018 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/when-stocks-drop-the-biggest-threat-is-the-person-you-face-in-the-mirrorHere’s What The Media Wants To Keep SecretTornadoes are catastrophic. They kill people every year. But when surveyed, most Americans believe tornadoes kill more people than asthma. The comparison isn’t close. Tornadoes kill about 50 Americans a year. Asthma wipes out more than 4,000.&lt;br /&gt;Asthma-related deaths make lousy headlines. They don’t grab eyeballs. And fewer eyeballs mean fewer advertising dollars. That’s why many people think we’re living in dangerous times. Too many think nostalgically of the good old days. But the good old days weren’t always good. Columnist Franklin Pierce Adams once wrote, “Nothing is more responsible for the good old days than a bad memory.” In fact, today might be a better time to be alive than at any point in history.&lt;br /&gt; Steven Pinker agrees. The Harvard University psychologist recently published Enlightenment Now: The Case for Reason, Science, Humanism and Progress. Bill Gates says it’s his “new favorite book of all time.” Pinker describes something called the availability heuristic. It means people estimate the probability or frequency of an event based on how easily examples come to mind. The media, for example, makes big news out of tornadoes. But it doesn’t report the thousands of deaths caused by asthma every year. That’s why most Americans think tornadoes kill more people than asthma does.&lt;br /&gt;Pinker says the people that consume more news stories than the average person end up with the most warped perceptions. That’s based on the media’s desire to scare or shock people. As a result, most people think the world is going to a hot place in a blazing hand basket. But based on most measurements, life has never been better.&lt;br /&gt;Take crime levels in the United States. When we turn on the television, most of the breaking news is about violent crimes or homicides. This creates a high availability heuristic. In other words, we can easily recall violent crimes because our news networks bombard us with their stories. In late 2016, The Pew Research Center learned that 57 percent of registered voters believed crime in the U.S. had increased since 2008.&lt;br /&gt;President Trump’s inaugural address echoed this perception. He said America was plagued by “crime and gangs and drugs that have stolen too many lives and robbed our country of so much unrealized potential.” He promised, “This American carnage stops right here and stops right now.”&lt;br /&gt;Unfortunately, violence does exist. But the FBI’s data on violent crime and property crime show that both have dropped dramatically since 2008. The Bureau of Justice and Statistics found the same thing.&lt;br /&gt;According to the FBI, the rate of violent crime plummeted by 48 percent between 1993 and 2016. According to the Bureau of Justice and Statistics, it fell 74 percent. The chart below shows the rate of reported violent crime from 1990-2017.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;U.S. Reported Violent Crime Rate &lt;br /&gt;1990-2017&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Progress, of course, doesn’t climb a linear path. Instead, it’s much like the stock market. Setbacks occur. But the overall trajectory shows long-term gains.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;U.S. Stock Market &lt;br /&gt;1972-2018&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Source: portfoliovisualizer.com&lt;br /&gt;Eighteen years ago, 189 members of the United Nations and two-dozen international organizations focused on eight Millennium Development Goals for 2015. Each goal represented a measurement of wellbeing:&lt;br /&gt;&lt;br /&gt; Eradicate extreme poverty and hunger&lt;br /&gt; Achieve universal primary education&lt;br /&gt; Promote gender equality and empower women&lt;br /&gt; Reduce child mortality&lt;br /&gt; Improve maternal health&lt;br /&gt; Combat HIV/AIDS, malaria and other diseases&lt;br /&gt; Ensure environmental sustainability&lt;br /&gt; Develop a global partnership for economic development&lt;br /&gt;Max Roser is an economist and research fellow at the University of Oxford. His website, Our World In Data, shows the world has made progress in all eight categories.&lt;br /&gt;Unfortunately, major media sources rarely broadcast these achievements.&lt;br /&gt;People are living longer. We have lower levels of infant deaths. Angus Deaton, a Nobel Prize winner in Economic Sciences says, “There is not a single country in the world where infant or child mortality today is not lower than it was in 1950.” Global homicide rates are lower than they were 20 years ago. Global democracy rates have increased. Global literacy rates are higher. Fewer women die during childbirth. Women have more rights today than at any point in history. Retirees are living longer. We have far fewer nuclear weapons. Alternative energy sources like wind and solar are far cheaper today than at any point in the past.&lt;br /&gt;There’s still plenty of progress to be made. But the world is improving. It’s also much safer than it was in the past. For example, there are far fewer war-related deaths. Headlines, however, skew public perception. Few people realize, for example, that lawnmower accidents killed an average of 69 Americans annually between 2005 and 2014. In contrast, an average of just two Americans were killed each year by immigrant Jihadist terrorists.&lt;br /&gt;To be fair, such statistics are a bit misleading. In any given year, that number could spike. That happened in 2001, when terrorists attacked The World Trade Center. But most years, lightning and public buses end more American lives than terrorists do.&lt;br /&gt;&lt;br /&gt;American Deaths Caused By Terrorists &lt;br /&gt;1970-2016&lt;br /&gt; &lt;br /&gt;Source: portfoliovisualizer.comWe aren’t living in a perfect world. But we are making progress–despite the negative noise that the media makes.&lt;br /&gt;For additional uplifting information on global progress, check out the following:&lt;br /&gt; Our World In Data&lt;br /&gt; Why We Are Living in the Greatest Time in History&lt;br /&gt; Five Amazing Pieces of Good News Nobody Is Reporting&lt;br /&gt; Seven Reasons The World Looks Worse Than It Really Is&lt;br /&gt; 23 Charts and Maps That Show The World Is Getting Much, Much Better&lt;br /&gt;Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas&lt;br /&gt;https://assetbuilder.com/knowledge-center/articles/heres-what-the-media-wants-to-keep-secretThu, 25 Oct 2018 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/heres-what-the-media-wants-to-keep-secretIs Technology Sucking The Life From Us?In the 17th century, a secretive group of Capuchin Monks went into graveyards with shovels. They dug up thousands of former friars. Sometimes, they took skulls. Other times, they took feet, hands, ribs or vertebrae. They also took entire bodies. Then they decorated the dusty basement of their church, Santa Maria della Concezione, with the bones of their brethren.&lt;br /&gt;It’s fascinating and horrific. But on the floor there’s a message revealing why the monks did it.&lt;br /&gt;&lt;br /&gt; What you are, they once were. &lt;br /&gt; What they are, you will be.We can’t recover time. Unlike money, once we spend it, we can’t get it back. Unfortunately, technology might be stealing our irrecoverable sands of time. In 2016 The New York Times reported that Facebook’s average user spent 50 minutes a day on the social media site. That means the average person spent one-sixteenth of their waking time on Facebook. According to the Bureau of Labor Statistics, that’s more time than we spend reading. It’s more time than we spend exercising. It’s even more than we spend socializing in person.&lt;br /&gt;But that was in 2016. According to Statistica.com, every year we spend more time on social media. In 2012, the average user spent 90 minutes a day on social media sites. By 2017, such time had increased to 135 minutes.&lt;br /&gt;Let’s put this in perspective. There are 24 hours in a day. If somebody sleeps 8 hours a night, that leaves 16 hours of time awake. If the typical person spends 135 minutes on social media, that’s 14 percent of their day.&lt;br /&gt;But here’s where the math gets creepy. Assume a life expectancy of 78 years. If a person averaged 135 minutes a day on social media sites that would total 7.31 years of their life.&lt;br /&gt;I’m not against social media. As the Greek philosopher, Heraclitis, once said: “Change alone is unchanging.” We can’t turn back to a pre-Internet age. Nor would most of us want to. But social media platforms are designed to be addictive.&lt;br /&gt;&lt;br /&gt;&lt;br /&gt;Vivek Wadhwa and Alex Salkever recently published the book, Your Happiness Was Hacked: Why Technology is Winning the Battle to Control Your Brain–and How to Fight Back. They refer to FOMO (The Fear of Missing Out) and how it leads to unproductive behavior. The authors say the average adult checks their emails 72 times during a workday. University of California researcher, Gloria Mark, says we check email at work 77 times a day. &lt;br /&gt;Consequently, many people lose focus at work. Many of them bring their work home to meet work-related deadlines. That’s time they’re spending away from friends and family. Email addictions cost time that we can’t replace. &lt;br /&gt; Other social media sites are even more addictive. Chamath Palihapitiya is a former Facebook executive. He was in charge of Facebook’s user growth. Today, he regrets the role he played. He says, “The short-term, dopamine-driven feedback loops that we have created are destroying how society works.”&lt;br /&gt;Trevor Haynes is a research technician in the Department of Neurobiology at Harvard Medical School. In March 2018, he published Dopamine, Smartphones and You: A Battle for your time. He says people get addicted to social media approval. For example, every time people click “like” or comment on our pictures or posts, it triggers dopamine in our brains. Addiction soon follows.&lt;br /&gt;Haynes says, “Every time a response to a stimulus results in a reward, these associations become stronger through a process called long-term potentiation. This process strengthens frequently used connections between brain cells called neurons by increasing the intensity at which they respond to particular stimuli.”&lt;br /&gt;Think back to the first time you posted something on social media. When somebody else responded, you might have been amused. But over time, responses to your posts could have triggered addictive cravings.&lt;br /&gt;Such cravings can shorten lives. In 2016, researchers Redhwan A. Al-Naggar and Shirin Anil published a study in the Asian Pacific Journal of Cancer Prevention. They concluded that, “Artificial light at night is significantly correlated for all forms of cancer as well as lung, breast, colorectal, and prostate cancers individually. Immediate measures should be taken to limit artificial light at night in the main cities around the world and also inside houses.”&lt;br /&gt;Unfortunately, social media and computer screens have a direct effect on sleep. &lt;br /&gt; Harvard University researchers Anne-Marie Chang, Daniel Aeschbach, Jeanne F. Duffy, and Charles A. Czeisler published relative research in 2014. They learned that using an iPad to read at night before going to sleep reduced the production of melatonin by 55 percent. Melatonin helps us sleep. Its production also fights cancer.&lt;br /&gt;A few years ago, I taught a high school personal finance class in Singapore. I asked my students, “How many of you go to bed with your phones?” Almost all of them said they did. I then asked how many of them answer calls or texts in the middle of the night. Once again, most of the hands shot up.&lt;br /&gt;BBC News reported a study in 2016. They asked 2,750 teenagers in the United Kingdom similar questions. The researchers learned that 45 percent of the teens checked their smartphones while they should have been sleeping. Forty-two percent of the teens slept with their phones.&lt;br /&gt;Despite writing this, I want to make something clear: I’m a social media addict. I try to control my addiction by limiting WiFi access. I’ve never carried a phone with access to WiFi. If I did, I might be a social mess. Like so many others, I’m critical when couples in restaurants have their faces in their phones. I’m critical of people in public settings that don’t look around. I’m critical of people who would rather text than speak to a real person.&lt;br /&gt;But I’m still an addict. I waste large chunks of my life online, doing unproductive things. Unfortunately, you might also be an addict. Wadhwa and Salkever don’t have all the answers. But their book provides some helpful suggestions to curb excessive social media use. After all, it’s important to remember what those Capuchin Monks wrote:&lt;br /&gt;&lt;br /&gt; What you are, they once were. &lt;br /&gt; What they are, you will be.Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas&lt;br /&gt;https://assetbuilder.com/knowledge-center/articles/is-technology-sucking-the-life-from-usThu, 18 Oct 2018 21:00:00 GMThttps://assetbuilder.com/knowledge-center/articles/is-technology-sucking-the-life-from-us